Is Micron Set For A Big Move?

Making directional trades in this market isn’t easy. On the one hand, you have high flying stocks that are trading well above reasonable valuations. Trading those types of stocks can be dangerous since they can reverse on a dime. On the other hand, value stocks are dead. Stocks trading below reasonable valuations just seem to stagnate.

So what can traders do to make money in this high volatility environment with a seemingly total lack of fundamental trading? There is a way to use options to where large moves in either directional can make money. However, this type of trading can be expensive. Still, buying a call and put at the same strike, known as an options straddle, may be one strategy that can pay off.

One stock that may be an excellent straddle candidate is Micron (MU). In fact, it’s possible a fund or well-capitalized trader just made a huge straddle bet on MU for November.

With MU trading at $48.32, the trader appears to have purchased the November 50 call and put for a total of $8.38. That means the breakeven for this trade is $58.38 or $41.62. That’s clearly a huge move needed between now and November for the position to pay off. There are earnings between now and then, but still, that’s a lot of premium to pay.

So why is this trade even noteworthy? The trader purchased this alleged straddle 15,000 times. That’s $12.5 million in premium that’s at risk. It seems evident that someone with a lot of cash thinks MU is going to move.

There is some reason to believe that MU may be set to move, especially with earnings coming up and all the volatility in the market. Even a $50 stock can see 20% swings over a short period of time.

What’s more, the directional bias for MU is far from obvious. There is an equally compelling bullish and bearish argument for the stock. Earnings will obviously shed some light on this matter, but so will news related to the global economy, and the recovery from the pandemic.

1 2
View single page >> |

Disclosure: Information contained in this email and websites maintained by Investors Alley Corp. ("Investors Alley") are provided for educational purposes only and are neither an offer ...

How did you like this article? Let us know so we can better customize your reading experience. Users' ratings are only visible to themselves.


Leave a comment to automatically be entered into our contest to win a free Echo Show.