Option Traders Make Large Bearish Bets On Micron

Wayne Duggan

Micron Technology, Inc. (NASDAQ: MU) 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.

The Trades

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

  • At 9:49 a.m., a trader bought 1,080 Micron put options with a $45 strike price expiring on April 17, 2020 near the ask price at $3.60. The two trades represented a $388,800 bearish bet.

  • At 10:10 a.m., a trader bought 500 Micron put options with a $46 strike price expiring on Jan. 17, 2020 at the ask price of $2.371. The trade represented a $118,550 bearish bet.

  • At 11:19 a.m., a trader bought 1,500 Micron call options with a $48 strike price expiring on Dec. 20 at the ask price of $3.30. The trade represented a $495,000 bullish bet.

  • At 11:29 a.m., a trader sold 2,495 Micron put options with a $44 strike price expiring on Dec. 20 at the bid price of $1.081. The trade represented an $269,709 bullish bet.

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.

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

Bottom Not In?

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.

Benzinga’s Take

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.

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Photo credit: Mike Deal, Flickr

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