Micron Option Trader Bets $1.5M On 5% Upside Ahead Of Earnings

Shares of Micron Technology, Inc. MU traded higher Friday after a pair of Wall Street analysts raised their price targets for the memory leader ahead of the company’s earnings report later this month.

Micron shares are up just 3.8% overall in the three weeks since the company significantly boosted its fiscal third-quarter revenue guidance from an old range of between $4.6 billion and $5.2 billion to a new range of between $5.2 billion and $5.4 billion. Several options traders made large bets on Friday that the upcoming earnings report could push Micron to new highs.

The Micron Trades

On Friday morning, Benzinga Pro subscribers received 24 option alerts related to unusually large Micron option trades. Here are a handful of the largest:

• At 9:41 a.m. ET, a trader sold 2,925 Micron put options with a $46 strike price expiring on July 17. The contracts were sold at the bid price of $1.15 and represented a $336,835 bullish bet.
• At 9:57 a.m. ET, a trader bought 1,137 Micron call options with a $52.50 strike price expiring on July 17. The contracts were purchased near the ask price at $3.30 and represented a $375,210 bullish bet.
• At 10:02 a.m. ET, a trader bought 4,785 Micron call options with a $52.50 strike price expiring on July 17. The contracts were purchased at the ask price of $3.25 and represented a $1.55 million bullish bet.
• At 11:41 a.m., a trader sold 500 Micron call options with a $65 strike price expiring in January 2022. The contracts were sold at the bid price of $7.75 and represented a $387,500 bearish bet.

Of the 24 large Micron option trades on Friday morning, 17 were either calls purchased at or near the ask or puts sold at or near the bid, trades typically seen as bullish. The other seven were calls sold at or near the bid or puts purchased at or near the ask, trades typically seen as bearish. The three largest trades of the morning were all bullish in nature.

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, given the relatively large size of the largest Micron option trade, there’s certainly a possibility it could be a hedge on a large position in Micron stock.

Micron Cooking Up Earnings Beat?

The large bullish option trades on Friday come after analysts at Wells Fargo and Morgan Stanley both raised their price targets earlier this week. On Tuesday, Morgan Stanley reiterated its Overweight rating and raised its target to $53. On Friday, Wells Fargo reiterated its Overweight rating and raised its target to $65.

DigiTimes also reported next-generation PlayStation and Xbox gaming consoles expected out later this year should drive NAND flash demand starting in the third quarter.

In addition to Micron’s guidance hike in late May, CEO Sanjay Mehrotra suggested the remote-work economy was driving chip demand, Micron was seeing improved average sales prices and the company’s overall business was relatively stable.

Micron’s quarterly earnings report on June 29 is less than two weeks away. Analysts are anticipating 75 cents in EPS on revenue of $5.29 billion, up 10.6% from a year ago.

Benzinga’s Take

The big $1.55-million call purchase has a break-even price of $54.05, suggesting at least 5% upside over the next month.

Given the calls expire next month,g the trader may be making more of a pure play bet on earnings rather than playing a long-term bullish thesis on Micron.

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

Related Links:

Nvidia Option Trader Bets $1.3M On Near-Term Upside

How To Read And Trade An Option Alert

Photo credit: Mike Deal, Flickr