MU Analysis

Micron Technology Inc. (MU)

Update 9/27/2017: MU’s earnings beat the Street estimate of $1.97, coming in at $2.02. Shares rose in overnight trading but stayed within the profit zone, and I exited at 27.6% of maximum potential profit, beating my 25% goal.

Shares rose by 2.9% during my holding period, or a +1,054% annual rate. Tye options position produced a 38.1% return for a +13,905% annual rate.

MU publishes earnings on Tuesday after the closing bell.

I shall use options that trade for the last time 10 days hence, on Oct. 6.

Implied volatility stands at 46%, which is 4.5 times the VIX, a measure of the volatility of the S&P 500 index.

MU’s IV stands in the 42nd percentile of its annual range and the 28th percentile of its most recent broad movement. The recent movement range was constructruted by ignoring an outlier spike in late June, and instead using the prior trend high

The price used for analysis was $35.10.

Premium: $2.61 Expire OTM
MU-iron fly Strike Odds Delta
Long 41.00 91.8% 10
Break-even 38.11
Short 35.50 56.1% 48
Short 35.50 44.1% 52
Break-even 32.61
Long 30.00 90.6% 8

The premium is 48% of the width of the position’s wings.

The risk/reward ratio is 1.1:1.

The zone of profit in the proposed trade covers a $2.71 move either way. The biggest immediate move after each of the past four earnings announcements was $2.61, and the average was $1.57. After eliminating the maximum and minimum post-earnings movements, the central tendency is $1.79.

The expected move covering 85% of occurrences is $2.51, within the zone of profit.

The bid/ask spread is 2.7%.

Decision for My Account

Despite my misgivings about the malformations in the IV, producing lower percentiles than I like, it is an attractive trade. Therefore, I have entered an order on MU as described above. The stock at the time of entry was priced at $35.15.

By Tim Bovee, Portland, Oregon, Sept. 26, 2017


Tim Bovee, Private Trader tracks the analysis and trades of a private trader for his own accounts. Nothing in this blog constitutes a recommendation to buy or sell stocks, options or any other financial instrument. The only purpose of this blog is to provide education and entertainment.

No trader is ever 100 percent successful in his or her trades. Trading in the stock and option markets is risky and uncertain. Each trader must make trading decisions for his or her own account, and take responsibility for the consequences.

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