How Large Option Traders Are Playing The Micron Earnings Dip

Micron Technology, Inc. MU tanked Friday after the company disappointed the market with its earnings report on Thursday afternoon.

The steep drop comes as no surprise to a handful of large option traders that made large bearish Micron bets this week ahead of earnings. Here’s a look at how those large traders are positioning themselves following the drop.

The Trades

On Wednesday, Benzinga reported extremely bearish large option trading activity in Micron, suggesting an earnings miss could be coming.

On Friday morning, Benzinga Pro subscribers received 15 option alerts related to unusually large trades of Micron options. Here are a handful of the biggest:

• At 9:32 a.m., a trader sold 1,388 Micron put options with a $43 strike price expiring on Oct. 18 near the bid price at $1.063. The trade represented a $147,544 bullish bet.
• At 9:34 a.m., a trader sold 1,815 Micron put options with a $43 strike price expiring on Oct. 18 near the bid price at 92.3 cents. The trade represented a $167,524 bullish bet.
• At 9:35 a.m., a trader sold 1,240 Micron call options with a $49 strike price expiring on Jan. 17, 2020 near the bid price at $2.951. The trade represented a $365,924 bearish bet.
• At 11:49 a.m., a trader sold 9,850 Micron put options with a $40 strike price expiring on June 19, 2020 at the bid price of $4.25. The trade represented a $4.18-million bullish bet.

Of the 15 total large Micron option trades Wednesday morning, 10 involved calls purchased at or near the ask or puts sold at or near the bid — trades typically seen as bullish.

The remaining five trades were calls sold at or near the bid or puts purchases at or near the ask — trades typically seen as bearish.

Why It's Important

Even traders who stick exclusively to stocks often monitor option market activity closely for unusually large trades. Given the relative complexity of the options market, large options traders are typically considered to be more sophisticated than the average stock trader.

Many of these large options traders are wealthy individuals or institutions who may have unique information or theses related to the underlying stock.

Unfortunately, stock traders often use the options market to hedge against their larger stock positions, and there’s no surefire way to determine if an options trade is a standalone position or a hedge.

In this case, at least the $4.18-million June 2019 put sale is likely too large to be a retail investor and could potentially be an institution closing out a pre-earnings hedge.

Micron Bounce Ahead?

The majority of the large option trades in Micron on Friday morning following earnings are bullish in nature, which could suggest traders are turning more bullish on Micron following the earnings drop.

Yet the large number of put sales Friday could also simply suggest that traders that took large bearish put positions ahead of earnings are simply cashing in on their big gains.

All but three of Friday’s 15 large option trades were near-term bets on October options, but all three of the longer-term trades (two for January 2020 and one for June 2020) were all bullish in nature, suggesting a Micron bounce sometime between now and the end of the year.

Benzinga’s Take

Between 10:16 a.m. and 10:33 a.m. on Friday, there were two large purchases of Oct. 18 Micron $45 calls near the ask and two purchases of Oct. 18 $43 puts near the ask, suggesting a potential strangle play over the next three weeks.

Traders use option strangles when they anticipate extreme volatility in a stock, but are unsure of the direction of the move.

Do you agree with this take? Email feedback@benzinga.com with your thoughts.

Related Links:

Large AMD Option Traders Betting On Q3 Earnings Beat

How To Read And Trade An Options Alert

Photo courtesy of Micron.