Sellers are ruling the roost today, but not all stocks are feeling their wrath. One of the few green companies in a sea of red on my watchlist is Micron Technology, Inc. (NASDAQ:MU). The relative strength provides a perfect reason to dive headlong into Micron’s stock chart to see if there’s a trade to be had.
Spoiler alert: There is.
A sector view of stock prices today will reveal that technology is leading the pack. While energy stocks are finally receiving their comeuppance (that sector is off 1.45%), tech is holding firm. And, it appears, semiconductors lie at the root of the muscle-flexing. Intel Corporation (NASDAQ:INTC), Advanced Micro Devices, Inc. (NASDAQ:AMD) and MU stock are all up on the day.
Micron is a trader’s stock. It boasts volatility and two-sided action in spades. That means with proper trade management, MU has allowed both bulls and bears to extract profits in recent months. At its current perch, the stock is 26% off its peak. The bloodletting has been sufficient in turning the daily trend lower, breaching the 50-day moving average. But, not the weekly trend. It remains bullish suggesting this two-month retreat could still be viewed as a longer-term buying opportunity.
Support looms large in the form of the 200-day moving average at $42.25. Furthermore, there’s a large congestion zone between $40 and $42 which is likely to lend a hand to buyers.
Because of the large daily swings, Micron stock options carry plenty of premium. That makes it an attractive candidate for naked put selling.
Sell Micron Options for a Quick Profit
To capitalize on the pullback and build a position with a high probability of profit, sell the June $40 put for around 77 cents. Consider it a bet that Micron shares will sit above $40 at June expiration. The reward is limited to the initial 77 cents. However, rather than riding all the way to the end, I suggest taking partial profits. If Micron rebounds in the coming weeks and you can buy back the put for 27 cents, do so. That will lock-in a 50 cent gain.
Since the initial cost of the trade is only around $400, the return on investment with a $50 gain will still be a respectable 12.5% return.
As of this writing, Tyler Craig held naked puts in Micron. Want more education on how to trade? Check out his trading blog, Tales of a Technician.
