Off and on the price chart, it’s a classic situation of he said, she said in an ever-volatile Micron Technology, Inc. (NASDAQ:MU). But if the bull camp has your vote, a creative spread combination still looks like a smart risk-adjusted way to position long in MU stock. Let me explain.
Within Wall Street’s analyst community both bears and bulls came out in MU stock last week. Taking the first swipe and leaving a definite mark was Morgan Stanley. Shares sank 8% Thursday after the firm downgraded shares from overweight to equal-weight.
Behind the cut, Morgan Stanley cited MU stock’s riskier valuation on the heels of a red-hot rally which put shares spitting distance from the company’s $65 price target. While pricing in Micron’s critical DRAM market remains strong Morgan Stanley would rather err cautiously as it sees “storm clouds on the horizon” following memory market channel checks with its industry contacts.
On Friday and as a direct rebuttal to Morgan Stanley’s call, Mizuho came out to defend MU stock following the hard price decline. Analyst Vijay Rakesh still sees reasons to be bullish on both Micron’s DRAM and NAND markets and expects upside in MU’s 2018’s second half supported by data center, server and PC demand. NAND is forecasted to see mid-single digit average selling price pressure, but should drive significant demand elasticity.
And on the price chart with shares of Micron up 2% Friday, but still reeling from the prior session’s hit, a similar battle between bears and bulls has taken hold of MU stock.
MU Stock Daily Chart
Since last writing about MU stock in mid-May, shares have continued to reaffirm an existing uptrend by establishing fresh intermediate highs. Equally important, Micron has also reinforced its reputation as an ever-volatile stock defined by often wild price swings, both up and down.
Technically, bears can point to a double-top variation as evidence MU stock is in the process of correcting and perhaps even entering into a bearish environment. But that remains weaker guesswork in this strategist’s view.
Bottom line and for bullish trend followers, until MU’s uptrend is broken or substantially deteriorated, using MU’s sometimes difficult price volatility to one’s advantage and buying the name on price weakness looks like the smarter bet for investors.
MU Stock Bullish “Combined” Spread Strategy
Last month’s outlined bullish spread in Micron has continued to work quite well for investors, defensively and offensively, despite MU stock’s hard and fast price drop off highs. Currently, a combined sale of the July $52.50/$50 put spread and purchase of the July $57.50/$62.50/$65 call butterfly has increased in value from 25 cents to 65 cents.
The strategy is still in a good spot to provide even larger profits over the next several weeks. But in lieu of the new price information on MU’s stock chart, as well as reviewing Micron’s options for new ideas or adjustments, a tweak looks appropriate.
For like-minded investors I’d propose selling the existing put vertical while buying a slightly higher and modified July $60/$65/$67.50 call butterfly for a net debit of 50 cents.
This combination is a bit more expensive and poses a modest increase in exposure to the downside. Opportunistically though, the position’s still small and well-contained risk enjoys a stronger profit profile if an ever-volatile MU stock makes a more pleasant turn back towards its recent highs.
Investment accounts under Christopher Tyler’s management currently own positions in Micron (MU) and its derivatives. The information offered is based upon Christopher Tyler’s observations and strictly intended for educational purposes only; the use of which is the responsibility of the individual. For additional market insights and related musings, follow Chris on Twitter @Options_CAT and StockTwits.
