Micron Technology, Inc. (NASDAQ:MU) has been on fire since the middle of the year. Micron stock has rallied more than 72% since May, with the shares enjoying solid support at their 20-day moving average.
What’s more, DRAM demand has remained strong — that’s Micron’s bread and butter — and competitors will be hard pressed to keep up with production due to Micron’s size and presence in the market.
All of this adds up to a bullish outlook for the company as it heads into the earnings confessional next week.
At a glance, Microns’ earnings figures themselves don’t look all that hot. Wall Street is looking for a significant year-over-year decline, with earnings seen as declining from a profit of 37 cents per share to a loss of 13 cents per share. Revenue is seen down 13% at $3.13 billion.
That said, many in the brokerage bunch are expecting considerably better results. Specifically, EarningsWhispers.com puts the whisper number at a loss of just 7 cents per share.
Taking a closer look at the analyst front, we find a wealth of bullish sentiment … and room for improvement. Data from Zacks points to 10 buys, three holds and three sell ratings. However, the 12-month consensus price target for Micron stock rests at $18.62, representing a mere 6.76% premium to yesterday’s close and leaving room for potential target hikes.
Click to Enlarge Options traders are also betting bullish on Micron stock ahead of next week’s quarterly report. Currently, the October put/call open interest ratio rests at 0.36, with calls nearly tripling puts among options set to expire within the next month. This ratio rises to 0.61 for the weekly October 4 series, but then I would expect to see more caution surrounding next week’s report.
Overall, weekly October 4 series implieds are pricing in a potential post-earnings move of about 7.8% for Micron stock, which is relatively low compared to historical volatility surrounding prior quarterly reports. The resulting upper bound lies at $18.87, above recent resistance at $18, while the lower bound rests at $16.13, just above support in the $16 region.
2 Trades for Micron Stock
Call Spread: With solid price action and growing support among analysts and options traders, MU stock appears ready to run higher. The only obstacle is technical resistance at $18, which could fall to next week’s quarterly report. Traders looking to bet on a breakout might consider an Oct $18/$19 bull call spread.
At last check, this spread was offered at 29 cents, or $29 per pair of contracts. Breakeven lies at $18.24, while a maximum profit of 71 cents, or $71 per pair of contracts, is possible if Micron stock closes at or above $19 when October options expire.
Put Sell: If a straight bullish play is a bit too risky for you, then a more neutral-to-bullish weekly Oct 7 series $16 put sell has a high probability of finishing out of the money. At last check, this put was bid at 19 cents, or $19 per contract. In this trade, you keep the premium as long as Micron stock closes above $16 when weekly Oct 7 options expire at the end of next week.
On the downside, if MU trades below $16 prior to expiration, you could be assigned 100 shares for each put sold at a cost of $16 per share.
As of this writing, Joseph Hargett did not hold a position in any of the aforementioned securities.
