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Nov. 7, 2019, 12:41 p.m. EST

Option Traders Make Large Bearish Bets On Micron

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By Benzinga.com

Micron Technology, Inc. /zigman2/quotes/205710729/composite MU +3.79% shares are up 2.5% Thursday as the debate rages on on Wall Street as to whether or not the semiconductor industry has hit the bottom of the current market cycle.

Some large option traders appear to have low expectations for Micron over the next couple of quarters.

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

Of the eight total large Micron option trades on Thursday morning, only two involved calls purchased at or near the ask or puts sold at or near the bid, trades typically seen as bullish. The remaining six trades were calls sold at the near the bid or puts purchases at or near the ask, trades typically seen as bearish.

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 small size of the largest Micron trades based on institutional standards, they are unlikely to be institutional hedges.

It seems the majority of the large Micron option traders on Thursday morning are betting on some more weakness from the semiconductor industry.

The large trades come a day after SMBC Nikko initiated coverage of Micron with an Outperform rating and $62 price target.

Micron reported a 30% quarter-over-quarter increase in DRAM volume in the most recent quarter, but pricing was down 20%. NAND volume was also in the double-digits, but pricing was still down compared to the previous quarter.

The near-term Micron bull case hinges on memory market pricing stabilizing heading into 2020, but the majority of the large Micron option traders on Thursday don't seem to be anticipating improvements until later on in 2020.

Micron shares are up 193% overall in the past three years and 54.2% so far in 2019, yet the fundamentals of the memory market don’t seem to match the market optimism.

Most of the large option trade on Thursday are bets that the next upswing in the memory market cycle won’t come as soon as bulls are anticipating. However, the largest single trade of the morning was bullish, and its break-even price of $51.30 suggests more than 4.7% upside for the stock by the end of the year.

Micron's stock traded around $48.90 per share at time of publication.

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

Related Links:

Option Traders Make Big Bets On Disney Ahead Of Earnings, Streaming Launch

How To Read And Trade An Options Alert

Photo credit: Mike Deal, Flickr

© 2019 Benzinga.com. Benzinga does not provide investment advice. All rights reserved.

/zigman2/quotes/205710729/composite
US : U.S.: Nasdaq
$ 49.26
+1.80 +3.79%
Volume: 22.11M
Dec. 11, 2019 4:00p
P/E Ratio
9.03
Dividend Yield
N/A
Market Cap
$54.53 billion
Rev. per Employee
$832,917
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