(Note: The author of this fundamental analysis is a financial writer and portfolio manager.)
Micron Technologies Inc. (MU) shares could rise another 15 percent from its current price of around $45 based on an analysis of the options market and technical trading patterns. Options bulls expect Micron’s stock price to climb to roughly $52 by April expiration. The newfound optimism is likely the result of the company raising its fiscal second-quarter guidance.
In an Investopedia article on February 6, we noted that options traders were betting on shares falling to roughly $35.50 by July. (See more: Why Micron’s Stock Plunge Will Only Get Worse.)
But apparently, the recent guidance release has changed that projection, and has turned bears into bulls. Analysts have also raised their expectations for Micron over the past 30 days, with revenue estimates lifted by about 4.5 percent, and earnings estimates by over 6 percent, according to data from YCharts.
The bullish bets can be found at the $45 strike in the options set to expire on April 20. The number of calls outweighs the number of puts by a ratio of roughly 3 to 1.
The calls have nearly 73,000 contracts of open interest, and the options are trading at a price of $3.50, which represents a notional value of almost $25.5 million – a massive wager. For those options to break even, Micron’s stock would need to spike to over $48.50.
But even more bullish are the bets at the $50 strike price, with nearly 63,000 contracts of open interest and a price of $1.60 for each contract. The value of those options are roughly $11.5 million. The breakeven price for those options would come at a strike price of almost $52, a gain of nearly 15 percent.
The overall number of bearish bets are fewer. At the $45 strike price, there are only 28,000 put contracts open, carrying a value of about $9.3 million. The price of Micron’s stock would need to fall to roughly $41.50 for the options to be profitable.
The chart shows a stock that is breaking out after rising above a multi-month downtrend. The chart suggests that Micron could increase to roughly $47 a share before hitting the next resistance level. But should the stock rise above that resistance at $47, it could climb to nearly $50. (See also: Technical Analysis: Support and Resistance.)
Micron stock has been on a rollercoaster ride since late November 2017, and it appears that rollercoaster is heading higher over the short term.
Michael Kramer is the Founder of Mott Capital Management LLC, a registered investment adviser, and the manager of the company’s actively managed, long-only Thematic Growth Portfolio. Kramer typically buys and holds stocks for a duration of three to five years. Click here for Kramer’s bio and his portfolio’s holdings. Information presented is for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any specific securities, investments, or investment strategies. Investments involve risk and unless otherwise stated, are not guaranteed. Be sure to first consult with a qualified financial adviser and/or tax professional before implementing any strategy discussed herein. Upon request, the advisor will provide a list of all recommendations made during the past twelve months. Past performance is not indicative of future performance.
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