(Note: The author of this fundamental analysis is a financial writer and portfolio manager.)
Micron Technologies Inc. (MU) stock is apparently not finished with its astronomical rise in 2017. Shares of the storage company are up by more than 125 percent this year, closing at $49.40 on Tuesday.
Micron shares could rise at least another 15 percent, to over $56, based on trading in the options set to expire on January 19. Call trading is very heavy, with over 20,000 contracts trading for each of the $49, $50, and $55 strike prices. Meanwhile, the technical trading patterns are suggesting the shares have room to climb even higher, potentially as high as $58, or more than 20 percent from Monday’s close.
The bets being placed today in the stock from the options market is massive on the call side, while muted on the puts side. The long straddle options strategy using the $49 strike price suggest Micron shares could rise or fall by 13.5 percent, or a price range of $42.35 to $55.65.
The implied volatility of the options is also very high, sitting at 43 percent – nearly five times higher than the 8.6 percent reading for the S&P 500 Index for the same expiration period.
Big Option Bets
With nearly 24,000 contracts traded, the $55 calls have traded at about $1.25 a share, indicating Micron stock would need to rise to a price of $56.25, up 15 percent, just for the options to break even.
The number of contracts traded is not a small bet, either. 24,000 contracts are equivalent to 2.4 million shares and carry a notional value of $3 million.
The implied volatility indicates that a one standard deviation move in Micron could be as much 17 percent, which is a huge reading. This means shares of Micron could rise or fall within a range of $40.50 to $57.10.
This could explain why some traders are betting the stock could rise to over $56, based on the options activity for the $55 calls. (See also: Micron Soars to 16-Year High on Samsung News.)
From a technical standpoint, a rise to $58 is not outside the realm of possibility, based on an unfilled gap created in Micron’s chart back in September 2000.
But there is a hurdle that stands in Micron’s path, which is a resistance level at $49.75. A price rise above $49.75 potentially sends the shares higher to nearly $58, or 19 percent.
The run higher in Micron shares looks like it may not be finished yet. At least that’s what the bulls are betting.
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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