Now Is the Time to Cash In the Chips on Micron Technology, Inc.

After a major run-up over the past month, shares of Micron Technology, Inc. (NASDAQ:MU) finally look to be running into some difficulty. Micron stock has certainly been a momentum monster recently, rising 16 out of the past 20 days. All good things come to an end, however, especially at such extremes. I look for the recent rally in MU to stall out over the coming weeks.

Something's Got to Give for Micron Stock

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Micron stock has rallied nearly 50% off the Feb. 9 intraday lows of $37.52. The price action from Friday, with MU breaking out to fresh new highs only to reverse course and close lower on the day, points to a reversal day.

This type of price pattern is many times emblematic of a short-term top in the stock as buyers finally become exhausted. It is even more significant given the massive rally in Micron stock.

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MU is also getting overbought on a 14 day RSI basis with readings over 70. The previous time Micron stock was this euphoric proved to be a major intermediate term top in the stock. MACD is also flashing a big time warning sign as it reaches by far the most most extreme levels over the past 6 months.

The extraordinary ebullience in MU shares has likely peaked with Micron stock poised for a pullback.

Earnings are due March 22 for Micron with the whisper number of $2.81 well above the official analysts expectations of $2.69. Due to the looming earnings, MU options that expire March 23 are trading at a much higher level of implied volatility (IV) than the March 29 expiration options. This sets up for a cheap put calendar spread trade that positions bearishly and also captures edge by selling the comparatively expensive shorter term options.

Micron Stock Trade Idea

Buy MU Mar 29 $52 puts and sell MU Mar 23 $52 puts for a 30 cents net debit.

Maximum risk on the trade is $30 per spread. Ideally MU stock closes near the $52 area post earnings on March 23 expiration to realize the maximum potential gain.

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