Trade Micron Technology, Inc. (MU) Stock for a 20% Return
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If you can’t stand price volatility, Micron Technology, Inc. (NASDAQ:MU) is not for you. But if you have a stronger stomach and use Micron’s options market to your advantage, MU offers solid growth at value prices off and on the price chart. Let me explain.
Source: Shutterstock
Let’s start off by stating that the third time, which I wrote of three weeks ago, hasn’t been the charm for shares of Micron on the price chart. The good news is it hasn’t necessarily been a bad thing either; except maybe for investors that wrongly panicked out of positions.
Tuesday’s session saw MU gap lower and finish off by a tad more than 5% on worries a weak earnings report from disk drive manufacturer Seagate Technology PLC (NASDAQ:STX) is bad news for MU stock’s own prospects. It’s not.
The focus should still be on Micron’s own recent top-notch results, the company’s upward-revised guidance and the strength of Micron’s key DRAM and NAND markets, which are just entering the early phases of a bullish cycle.
Don’t get me wrong, there is some business with Seagate and a bit of market correlation is appreciated. But at the end of the day, nothing has changed for MU stock’s bullish narrative. And that means it’s mostly the same as it ever was for Micron and good news for longer-term investors.
In fact, if the dots are to be connected properly, look no further than SK Hynix (OTCMKTS:HXSCL). The South Korean company also announced solid and upbeat results this week and unlike Seagate, actually shares the same DRAM market as Micron.
So can some investors and algorithms be forgiven for maybe failing to notice SK Hynix’s report or simply not up to speed on reading Korean with any fluency? Maybe. More importantly, other investors should just say thanks for allowing the price chart in MU stock to look the same as it ever was.
MU Stock Daily Chart
Since last writing about MU, shares are for all intents and purposes right where I left them. In a sense, it’s pretty much the same as it ever was, especially if one appreciates the bullish narrative for Micron off the price chart.
However, a bearish price trend has developed over this period. There are now a couple lower highs and lower lows in place on the daily chart. Also, MU stock has already failed to hold the fore-mentioned support earlier this month.
Bottom line, MU stock is going to have some haters given its technical situation. But for others like myself, who are willing to embrace a fully hedged options strategy to mitigate excessive risk, MU looks good.
MU Stock Collar Trade
Source: OptionVue.com/tyler
In reviewing Micron’s options board and optimistic shares will ultimately move higher, I like the idea of positioning for bullish volatility with a collar position. With MU at $29.81, the Oct $36 call/$25 put combination is priced for $29.84, or essentially on par with MU stock.
What does this nearly even-money spread offer bullish MU stock investors? On the downside, this position ensures risk through October expiration is contained to 16%, or $25 in MU stock, and where the long put is stationed.
The risk acceptance needed for MU stock isn’t for the faint of heart, but volatility is also a two-way street. As much and given our bullish view, we’re equally concerned with not giving away too much upside, especially with the October contract holding a September earnings event in its life cycle.
Bottom line, our initial cap on profits isn’t the high-water mark of $75 set by analysts, but a gain of 20% that matches Wall Street’s low-water mark of $36 in MU stock seems like a nice conservative start in a volatile name.
Investment accounts under Christopher Tyler’s management currently own positions in MU stock and its derivatives. The information offered is based upon Christopher Tyler’s observations and strictly intended for educational purposes only; the use of which is the responsibility of the individual. For additional market insights and related musings, follow Chris on Twitter @Options_CAT and StockTwits.
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