The Levels Micron Stock Options Traders are Watching – Schaeffers Research (blog)

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Options trading has been red-hot on Micron Technology, Inc. (NASDAQ:MU), with total open interest of 2.59 million contracts at the top of its annual range. Calls have the edge over puts, with 1.53 million of the former and 1.05 million of the latter currently open. Regardless of how options traders are positioning themselves, though, those purchasing short-term premium are able to do so at a relative bargain.

For instance, Micron’s Schaeffer’s Volatility Index (SVI) of 37% ranks lower than 79% of all comparable readings taken in the past year, suggesting tame volatility expectations are being priced into the stock’s short-term contracts. Plus, MU has consistently rewarded premium buyers, per its Schaeffer’s Volatility Scorecard (SVS) of 71. Simply stated, the equity has tended to make bigger moves than what the options market has priced in.

Today, MU’s weekly 10/13 40.50-strike put is most active, and traders appear to be bracing for a bigger slide through tomorrow’s close. Not far behind is the October 42 call, and it looks like new positions are being purchased here. Longer term, Micron’s October 40 call is home to peak open interest of 118,001 contracts, and data from the major options exchanges confirms most of this activity has been of the buy-to-open kind. By initiating long calls at these two front-month calls, options buyers expect the equity to be sitting north of the strikes by expiration at next Friday’s close.

Elsewhere on Wall Street, analysts remain firmly in Micron’s corner, with 17 of 19 brokerages maintaining a “buy” or better rating, and not a single “sell” on the books. Today, in fact, Barclays boosted its price target on MU stock to $60 from $40 — territory not charted since January 2000, and a move CNBC’s Jim Cramer called “very aggressive” — after the chip maker boosted its public offering yesterday.

However, there are pockets of discontent brewing, as evidenced by the sharp increase in short interest on Micron. In the latest reporting period alone, short interest jumped 8.6% to 55.33 million shares, the most since mid-January. According to Schaeffer’s Quantitative Analyst Chris Prybal, this equates to dollar value of more than $318 million — sixth on the list of stocks with the biggest dollar change values in short interest. However, these bearish bets still only account for just 5.3% of the security’s available float.

On the charts, Micron stock has been moving higher for most of the past 12 months, boasting a nearly 141% year-over-year lead. And while the shares topped out at a 16-year of $42.07 yesterday, they went on to close the session lower — and are down 2.4% today to trade at $40.61.

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