(Note: The author of this fundamental analysis is a financial writer and portfolio manager.)

Micron Technology Inc. (MU) options traders are still piling up big bets that the chipmaker's stock price will continue to rise, by nearly 18 percent from current levels of $41. The options betting in Micron was first observed in an Investopedia article on August 16, when massive bets were being placed on the September 15, $33 and $36 calls. The stock was trading at just $31 at the time. Shares of Micron are up by nearly 85 percent on the year. 

Options traders have come back on several occasions, and it was only on September 29, when the stock was trading at roughly $38, that traders were betting the stock could rise to nearly $41 by October 20. Those bullish traders are piling up for expiration now in January 2018, and the bets imply the stock could increase another 18 percent, to almost $48 a share. (See more: Micron Shares Could Rise Another 10%.)

MU Chart

MU data by YCharts

 

Big Option Betting

(Interactive Brokers)

The long straddle, using the $40 strike for expiration on January 19, suggests the stock could rise or fall by $7.20, a range of $32.80 to $47.20. But the calls are favored by nearly 15:1, with the open interest at 39,000, while the puts stand at only 2,700. The straddle suggests Micron's stock would have to move by 18 percent just to break even should traders buy both the put and the call. 

Huge Volatility Priced In

Implied volatility is exceptionally high as well, at 42.1 percent, which is nearly four times greater than the S&P 500's implied volatility of 9.5 percent for the same expiration period.

Micron's implied volatility tells us that a one standard deviation move in shares of Micron would be a whopping 22 percent, which is an enormous range from roughly $31.85 to $50. That is a massive level of volatility. By comparison, the S&P 500's implied volatility suggest a one standard deviation move of 5 percent. 

Improving Fundamentals Driving Price

According to a recent article in Bloomberg, Bill Joy, the former co-founder of Sun Microsystems, noted that advances in augmented reality and artificial intelligence would lead to stronger demand for DRAM (dynamic random access memory) chips. Joy believes DRAM prices will not see the same volatility as in the past.

The article notes that Joy sees the chip maker's shares rising to $64. Joy works for the $2.5 billion hedge fund, Water Street, and has pushed the firm to build a position in Micron. The article notes that Water Street has historically has gone short shares of DRAM chipmakers in the past. 

The options market is signaling a significant upward price movement for Micron stock over the next three months. Options traders have been right in the past. Will they be right again?

 

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 holdingsInformation 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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