MU Analysis

Micron Technology Inc. (MU)

Update 12/20/2017: MU beat the Street’s earnings estimate by 8.5%, coming in at $2.45 after estimates of $2.26. Shares rose by $3.24 in overnight trading, then fell $1.78 in the first 80 minutes after the opening bell. I exited early for 15.0% of maximum potential profit.

Shares rose by 5.5% over the holding period of less than a day, or a +1,993% annual rate. The options position produced an 18.9% return for a +6,909% annual rate.

I entered the trades with Zacks report a bullish rank (2) with an earnings surprise predictor score of 0.23%, anticipating a small chance of a positive earnings surprise. Both metrics successfully indicated a bullish bias but failed to anticipate the magnitude of the surprise. 

The average direction index stood at 23.35, with the positive directional index (+DI) at 26.03 and the negative (-DI) at 24.49, together indicating a weak upward or sideways trend. The metrics suggest the market failed to anticipate MU’s actual performance.

The estimated price move, based on options pricing, was $3.38. The actual move reached a high of $2.82 above the pre-earns close, staying within the $3.33 upside profit zone.

The price rose $1.77 pre-earns close to the close of the first trading session after earnings, below the $2.27 average, $2.92 maximum and $2.29 central tendency of the four prior earnings announcements.


MU publishes earnings on Tuesday after the closing bell.

I shall use options that trade for the last time 10 days hence, on Dec. 29.

Implied volatility stands at 54%, which is 5.4 times the VIX, a measure of the volatility of the S&P 500 index.

MU’s IV stands in the 41st percentile of its annual range — a result of a spike last June — and the 81st percentile of its most recent broad movement.

The price used for analysis was $43.95. With a slight chance of a positive earnings surprise but no strong trend, I shall build the position using a direction neutral iron fly structure.

Premium: $3.33 Expire OTM
MU-iron fly Strike Odds Delta
Calls
Long 49.50 88.0% 14
Break-even 47.33 79.0% 24
Short 44.00 53.6% 51
Puts
Short 44.00 46.4% 49
Break-even 40.83 69.0% 27
Long 37.50 87.2% 10

The premium is 3.33% of the width of the position’s wings.

The risk/reward ratio is 1:1.

The zone of profit in the proposed trade covers a $3.33 move to the upside and a $3.17 move to the downside. The biggest immediate move after each of the past four earnings announcements was $2.91, and the average was $2.27. After eliminating the maximum and minimum post-earnings movements, the central tendency is $2.29.

The expected move covering 85% of occurrences is $3.38, slightly beyond the profit zones in either direction.

The bid/ask spread is 1.8%.

Decision for My Account

I have entered a position on MU as described above. The stock at the time of entry was priced at $43.82.

Although the expected move is wider than the profit zones, by a few cents either way, the post-earns moves after the last four announcements is within the zones, so I was willing to trade. The lack of a strong trend was also a determining factor, as was the narrow bid/ask spread.

By Tim Bovee, Portland, Oregon, Dec. 19, 2017

Disclaimer

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.

License
Creative Commons License

All content on Tim Bovee, Private Trader by Timothy K. Bovee is licensed under a Creative Commons Attribution-ShareAlike 4.0 International License.

Based on a work at www.timbovee.com.

2 thoughts on “MU Analysis

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google+ photo

You are commenting using your Google+ account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

w

Connecting to %s