Market Update: Micron Technology (MU)

Micron Technology (MU) is a stock that Cabot Options Trader has traded in the past, and it's held by many top hedge funds.  The company reported earnings tonight last night, and option activity in the stock has been interesting lately.

Micron was considered a growth leader in the past several years, but it's been a huge laggard this year. The Nasdaq is up 7.15% year-to-date and the Semiconductor ETF (SMH) is up 5.99%, but MU is down 31%.  

That said, several hedge fund titans have significant positions in the stock including:

David Einhorn: 11.89% of portfolio in MU
Seth Klarman: 8.9% of portfolio in MU
Whitney Tilson: 6.21% of portfolio in MU
Richard Perry: 5.12% of portfolio in MU

Option trading in MU ahead of earnings has been fairly mixed. Though I would say there's been a bullish bias. Here are some examples of recent bullish trades made in the last several days:

Buyer of 3,000 MU January 32/42 Bull Call Spreads (exp. 2017) for $1.31 (great risk reward for a long term stock turnaround)
Buyer of 20,000 MU July 25 Calls for $0.68 (cheap shot)
Buyer of 11,000 MU June 25 Calls (exp. 6/26) for $0.56 (cheap shot)

Here are some of the recent bearish trades:

Buyer of 20,000 July 20 Puts for $0.11 (cheap shot or hedge)
Buyer of 17,000 July 22 Puts for $0.27 (cheap shot or hedge)

Option volatility is high headed into earnings, though not well above what I would expect ahead of earnings, and in line with previous earnings cycles. The volatility chart shows volatility that relatively in line with previous earnings releases below (charts via Livevol):

mu chart 1

Skew, or the options market's perceived risk of a big move, is not pricing in fear of a big downside or upside move. The skew chart showing virtually no fear of an explosive move below:

mu chart 2
I really don't have an opinion one way or the other for MU earnings. Order flow has been mixed, but with a slightly bullish bias. The stock action, on the other hand, has been awful recently.

While volatility is relatively high, and will get hit very hard after earnings are released, if you want to take a long call or put position ahead of the earnings release, your losses are capped at the premium paid. As always, I recommend buying calls/puts slightly out-of-the-money, with more than a month until their expiration.

However, I see no edge in initiating such a position with order flow mixed, and skew and volatility not giving any directional hints, so I didn't trade MU ahead of earnings.

Stock Picks

Loews Corp.

This undervalued stock has strong future earnings growth expectations.


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One of Paul Godwin’s favorite stocks in his Cabot Emerging Markets Investor portfolio.

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