Micron's (MU) shares may plunge following its quarterly results on March 20. There has been an increasing amount of bearish options betting in recent days. Some options bets indicate the stock may fall by 12% or more following that report from its current price of $39.40 on March 14.
The last time I wrote on Micron was on February 5 when Micron's Stock Sees Increasing Amounts of Bullish Activity. That was when the stock was trading around $39.50. The stock ended up climbing to an intraday high of $43.99 on February 25.
Now, the momentum is going the other way, as many recent reports suggest that DRAM prices are not recovering. Remember, during the previous set of quarterly results, the company noted the outlook for the second half was for improving DRAM prices. At this point, the first quarter outlook continues to darken as Digitimes reported on March 7 contract prices for DRAM are now expected to fall 30% in the first quarter versus previous estimates of a 25% decline sequentially.
Momentum Turns Negative
In recent days, the puts at the $35 puts for expiration on March 22, 2 days after results, have seen an increasing number of bearish bets with the open interest rising by nearly 11,000 contracts. According to data from Trade-Alert, those options traded on the ASK indicated they were likely bought. For a buyer of those puts to earn a profit, the stock would need to fall to around $34.60.
The $39 strike price for expiration on March 22 has also seen an increase of roughly 5,500 open contracts. Again, these contracts traded on the ASK also indicated the options were bought suggesting the stock falls.
The May $39 puts have also seen a spike in its open interest in recent days. Like the other put options mentioned, they were bought as well.
A Shrinking Number of Call Contracts Trading
As the chart below shows the number of total put contracts trading since March 7 has been gradually increasing while the number of call contracts trading has been declining. It again would indicate that overall there are a growing number of bearish bets and a shrinking number of bullish bets being placed.
It seems increasingly clear that traders are betting that Micron's stock will continue to struggle over the near term. But for as bearish as the options betting is for the stock ahead of the results, investors with a long-term time horizon may prove to benefit from a short-term pullback should the company continue to see an improving outlook for the second half of 2019. It would seem clear from the betting, that for now, traders do not see a better second half of the year for the company.
The focus of Reading the Markets is to find stocks that may rise or fall using fundamental, technical, and options market analysis. Additionally, we search for clues from the broader markets to discover trends and gauge direction.
Michael Kramer relies on his more than 20-year of experience working in the financial industry. 10-years of experience comes as an international and domestic buy-side equity trader at multi-billion long/short investment advisor.
I hope this gives a brief overview of how we are dissecting the markets daily.
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