Is Micron Stock Bound to Pop … Or Will It Drop?

Advertisement

MU stock - Is Micron Stock Bound to Pop … Or Will It Drop?

Source: Shutterstock

Micron (NYSE:MU) has rebounded smartly from both a disappointing earnings report and veiled threats out of China on DRAM price fixing. MU stock has risen nearly 10% over the past eight trading days since making a low of $51.48 on July 3, but it is now running into some serious resistance.

Micron stock certainly sits at an important inflection point and seems poised for a major move. I look for the stock to break out of the recent consolidation in a convincing manner over the coming weeks.

In my previous analysis on MU stock from May 31, I laid out a bearish thesis. This proved to be the top on Micron with the stock subsequently falling sharply. Now that shares have recovered somewhat, my bearish tone has tempered because its price matters.

From a technical perspective, Micron stock is at a critical juncture. It filled in the post earnings gap at the $57.10 level yesterday before reversing course. Shares also closed just below the important 50-day-moving-average at $56.24.

MU stock has had a series of both higher lows and lower highs, meaning it is coiling ever tighter and it is likely poised for a dramatic breakout.

MU stock Chart

Implied volatility (IV) in Micron options is now at the lowest levels since late November, right before Micron stock had a big drop.

IV is at the 21st percentile, while historic volatility (HV), which measures how volatile MU stock has actually been, is much higher at the 68th percentile. This means option prices are very cheap in comparison to how much Micron shares have been moving.

Micron stock options

So to position for either a pop or drop in MU stock, a comparatively cheap option strangle trade makes probabilistic sense.

A strangle trade involves simultaneously buying an out-of-the-money call and out-of-the-money put, which benefits from a larger move in the underlying stock than the options market has priced.

MU Stock Trade Idea

Buy the MU Aug $57.50 calls and buy the MU Aug $55 puts for a $4.25 net debit.

Maximum risk on the trade is $425-per-strangle. Ideally, Micron stock moves dramatically up or down from current levels to realize maximum potential profits. More risk adverse traders can elect to sell shorter-term calls and puts against position to lower the overall risk.

Tim may hold some of the aforementioned securities in one or more of his newsletters. Anyone interested in finding out more about Tim and his option-based strategies can go to https://marketfy.com/item/options-and-volatility.


Legendary Investor Louis Navellier’s #1 Stock to Buy NOW

Louis Navellier — the investor the New York Times called an “icon” — just helped investors make 487% in the booming Chinese stock market … 408% in the medical device sector … 150% in Netflix … all in less than 2 years! Now, Louis is urging investors to get in on what may be the opportunity of a lifetime. By using a unique investment strategy called “The Master Key,” you could make hundreds of percent returns over the next few years. Click here to learn about the #1 stock recommendation from one of America’s top investors.

Tim spent 13 years as Chief Options Strategist at Man Securities in Chicago, four years as Lead Options Strategist at ThinkorSwim and three years as a Market Maker for First Options in Chicago. Tim makes weekly appearances on Bloomberg TV  “Options Insight”, Business First AM “Trader Talk”, TD Ameritade Network “Morning Trade Live” and CBOE-TV “Vol 411” to discuss everything from volatility and option related.


Article printed from InvestorPlace Media, https://investorplace.com/2018/07/is-micron-stock-bound-to-pop-or-will-it-drop/.

©2024 InvestorPlace Media, LLC