Flash memory and semiconductor maker Micron Technology (MU) reported Q3 results last week that slightly exceeded Street’s estimates. Earnings reached $ 1.88 per share, more than double last year and 10% more than analysts’ consensus estimate. Revenue was up 36% year over year, beating estimate by $ 160 million. In addition, MU expects further growth in the fourth quarter, which is well above the forecasts of the analysts. Street’s response has been modestly positive, although there were some concerns about MU’s cost structure.
The share price movement after the profit was anything but positive. Shares fell 5.7% the day after the report and continued their downward trend, bottoming out on Thursday at a 10.6% decline. That low brought the stock to its 200-day moving average, which has not been tested since last October. Friday was an encouraging day for MU as the stock climbed 2% and had its best day on gains. The 200 day mark is at the 75 mark, which is where we short put our bullish credit spread while looking for trendline support. Also note that the 75-76 range has provided strong support several times over the course of 2021.
If you agree that MU will stay above its 200-day moving average, consider the following trade, which depends on the stock staying above 75 to expire in six weeks.
Buy to Open MU 20Aug 72.5 Put (MU210820P72.5)
Sell on Open MU 20Aug 75 Put (MU210820P75) for $ 0.60 loan (sale of an industry)
This loan is $ 0.04 less than the midpoint of the options spread when MU was trading at $ 78.74. Unless the stock recovers quickly from here, you should be able to get close to that amount.
Your commission on this trade is only $ 1.30 per spread. Each spread would then bring in $ 58.70. This trade reduces your purchasing power by $ 250 and your net investment is $ 191.30 ($ 250 – $ 58.70). If MU closes above $ 75 on August 20, both options will expire worthless and your return on the spread will be 31% ($ 58.70 / $ 191.30).
This entry was posted on Sunday, July 11th, 2021 at 6:46 pm and is filed under Stock Options Trading Idea of the Week.