Here's Why Micron May Plunge After Its Quarterly Results

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About: Micron Technology, Inc. (MU)
by: Mott Capital Management
Summary

There have been an increasing number of bearish put bets in Micron ahead of results.

Some bets indicate the stock may fall 12% or more.

The number of calls trading has declined over the past few days.

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.

Darker Outlook

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.

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Additional disclosure: Mott Capital Management, LLC is a registered investment adviser. 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 results.