Score Profits From Traders Dumping The Magnificent 7

Traders are starting to rotate out of the Magnificent Seven tech giants in favor of Micron MU and Intel INTC.

Add to that the recent Fed meeting and Fed Chair Jerome Powell‘s conference, and you have the perfect setup for a bullish move in Micron stock.

So, let’s create a trade that best captures that profit potential at minimum risk.

Micron stock’s relative resistance zone sits at around $115, but trading could be choppy around these regions.

The best trade for this kind of setup is a long call butterfly setup. This is the combination of a long call spread and a short call spread with the same short strike and expiration date.

Here it is, positioned for upside:

• Buy to open 1 MU 17 Apr 105 calls
• Sell to open 2 MU 17 Apr 115 calls
• Buy to open 1 MU 17 Apr 125 calls

With this trade, if Micron’s share price moves to resistance over the next month, we capture $1,000 less the cost of the call butterfly, currently $1.57, if prices move to $115 and hold there into expiration. That $1.57 is the current debt and the trade’s total risk.

The total highest potential profit is $10 (the distance between the 105 and 115 strikes), less the cost of the debt incurred by buying the call butterfly, so $10 – $1.57 = $8.43 (minus commissions).

It is extremely rare to collect all this premium. Instead, I like to consider 200%-300% profit as the ceiling, but big moves can deliver much higher returns.

Set an alert for prices near the middle strike so you’re aware of the motion into the middle strike, as this is where the maximum profit will engage into expiration.

The two options to exit the trade are:

• Sell the call butterfly when the profit goal moves into your target parameters, particularly once the middle strike is tested. I often look for a 100%-200% return for these butterflies when the upside turns out to be sharp.
• Sell the call butterfly when your loss threshold is breached. For me, this is usually 50%-65%.

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