September has not been kind to Micron Technology Inc. (NASDAQ:MU), with MU stock down about 19% in the first two weeks of the month, hit by pricing and trade war concerns. This selloff is a big opportunity for bullish traders, as earnings loom large this Thursday.
Micron has outperformed in each of its prior four trips to the earnings confessional. This time around should be no different. Analysts are expecting the company to post a profit of $3.33 per share, up 64% from a profit of $2.20 per share last year. Revenue is expected to rise 34.4% to $8.25 billion.
Those are impressive numbers, but expectations have dipped lately due to flash memory pricing concerns and the U.S.-China trade war. According to EarningsWhispers.com, the whisper number comes in at $3.30, 3 cents less than the consensus.
Click to Enlarge Short-term sentiment has also taken a considerable hit for Micron stock. Numerous headlines in the financial media are calling for falling DRAM and flash memory prices.
Cyclical concerns within the sector have been elevated to mainstream issues, especially considering the U.S.-Chinese trade war situation.
Despite the wealth of chatter, most analysts are sticking to their guns on Micon stock. According to Thomson/First Call, 28 of the 31 analysts following MU stock rate the shares a “buy” or better. Additionally, the 12-month consensus price target rests at $83.60, a whopping 88% premium to Friday’s close.
In short, Micron stock has plenty of upside potential before valuation becomes a concern.
Options traders have also remained bullish on MU stock. Currently, the October put/call open interest ratio rests at 0.58, with calls nearly doubling puts among options set to expire within the next month. Peak call OI lies well overhead at the $55 strike. Meanwhile, peak put OI is firmly in the money at the $52.50 strike.
Despite the negative headlines, Micron stock options traders appear unwilling to place heavy bets against the shares.
Overall, October implied volatility is pricing in a potential post-earnings move of about 12% for Micron stock. The resulting upper bound lies at $49.50, while the lower bound rests at $38.91.
2 Trades for Micron Stock
Call Spread: Micron has a strong history on the earnings front. With the shares near oversold levels heading into Thursday’s report, the path of least resistance lies to the upside. This is doubly so if Micron offers up solid guidance and puts cyclical concerns to rest.
Traders looking to bet on a post-earnings rally might consider an Oct $47/$48 bull call spread. At last check, this spread was offered at 33 cents, or $33 per pair of contracts. Breakeven lies at $47.33, while a maximum profit of 67 cents, or $67 per pair of contracts, is possible if Micron stock closes at or above $48 when October options expire.
Put Sell: If a straight bullish play is a bit too risky for you, then a more neutral-to-bullish Oct $39 put sell has a high probability of finishing out of the money. At last check, this put was bid at 90 cents, or $90 per contract.
In this trade, you keep the premium as long as Micron stock closes above $39 when October options expire. On the downside, if MU trades below $39 prior to expiration, you could be assigned 100 shares for each put sold at a cost of $39 per share.
As of this writing, Joseph Hargett is long on Micron Technology stock.
