(Note: The author of this fundamental analysis is a financial writer and portfolio manager.)
Micron Technology Inc. (MU) traders are betting heavily that shares of the stock rise by 14.5% by expiration in the middle of July. The bets have been steadily increasing since late April, while the technical chart also suggests shares of the stock may continue its rise as well. Shares of Micron have already been on a stellar run in 2018 rising by almost 36%, substantially better than the S&P 500's rise of only 2.25%
The company pre-released third-quarter guidance on May 21 ahead of its investor day and is now looking for revenue to climb to a range of $7.7 billion to $7.8 billion, better than estimates of $7.47 billion. Meanwhile, the company is expecting earnings per share to rise to a range of $2.76 to $2.90; analysts had been forecasting earnings of $2.84 per share. Should revenue come in at the high end of guidance, it would have grown by about 40% versus last year, while earnings would have increased by over 79% over the past year. Micron was trading up by about 4.75% to $55.89 in early trading Monday.
Options traders are betting shares of Micron rise to about $63 by expiration on July 20 using the $60 strike price. The price of the call cost about $2.75 per contract and would suggest that shares need to rise to $62.75 to break even. There are roughly 53,500 open call contracts at that strike price, and those calls contracts have been steadily increasing over the past month.
The number of open calls has increased by nearly 62% from about 33,000 open contracts at the end of April. The rising open interest suggests that traders have been growing increasingly more bullish on the stock over the past month. Additionally, that set of options are seeing a heightened level of activity in early trading on May 21, with roughly 5,000 calls trading, after the positive earnings guidance.
The long straddle options strategy is suggesting that the price of Micron rises or falls by 15% from the $55 strike price by expiration on July 20. But the number of calls at that strike price also outweighs the puts, with nearly 42,000 open calls to roughly 39,000 open puts, another bullish indication.
Bullish Technical Setup
The technical chart of Micron is a bullish one, after breaking out of a falling wedge, a bullish reversal technical pattern. Additionally, the stock has crossed a key resistance level at $54 and has a strong path to rise to about $61.50 based on the current trends.
The better-than-expected revenue and earnings guidance lend plenty of support for shares to continue to rise, and it appears the bullishness in the options have appeared for good reason.
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.