Option Trade Of The Day: Micron Technology (MU)
This is a huge week for the market with all of the economic reports that are due out, President Trump’s first State of the Union Address, a Fed Meeting and a ton of earnings reports. In fact, 25% of the stocks in the S&P 500 are set to report earnings this week.[hana-code-insert name=’adsense-article’ /]Given that information, I am trying to keep some balance to the option trade ideas.
The momentum seems to be to the upside still, but with all of the information coming out, you will want to be on your toes this week.
With all of that in mind, the stock I have for you today is Micron Technology (MU).
The company has performed really well from a fundamental standpoint with EPS growth last quarter of 666% and EPS estimated growth of 97% for this year.
The ROE for the company is 36.8% and the profit margin is 28.6%. Under circumstances like this, with all of the potential for a volatile market, I prefer to invest in companies that are fundamentally sound. It is also a bonus that the company doesn’t report earnings until March 21.
Looking at the chart we see that the stock went through a tremendous rally from August through November and has since been grinding sideways. The stock went through a similar scenario from February ’17 through May ’17 and then consolidated from June through July. We are looking for a similar move this time around.
Buy to open the April18 40 strike calls on MU at $5.85 or better. These options expire on April 20. For these options to double, the stock will need to gain just under 20%. The stock gained 50% in two months from August to October of last year. What I would look to do with these options is try to get a double before the earnings report in March and then take half of the trade off the table and let the other ride. If the company surprises with their earnings report you would still have an unlimited upside while using house money.
— Rick Pendergraft
OPTIONS DISCLAIMER: Options involve risk and are not suitable for all investors. Prior to buying or selling an option, a person must receive a copy of Characteristics and Risks of Standardized Options. Copies of this document may be obtained from your broker, from any exchange on which options are traded or by contacting The Options Clearing Corporation, email@example.com.[hana-code-insert name=’IAlley article’ /]