There is a fair amount of randomness to an earnings announcement and Micron Technology Inc (NASDAQ: MU) is no different. It seems that price does what it wants a lot, which can be really difficult to trade. At TheoTrade, we use the Expected Move Indicator to understand market expectations. However, you still have to make a directional choice whether it will move up, down or sideways.
The choice on direction is always a difficult one. Even when the news appears to be positive, the price can still fall. The same is true of negative news. As a retail trader, we are at a little bit of a disadvantage when it comes to information and interpreting it.
That’s where price and option analysis can help. At times, unusual option activity can give a heads up on direction and that’s what appears to have happened on Micron today.
Micron Option Activity
Some of the characteristics of significant unusual option activity (UOA) is when the options are bought, are out-of-the-money, and have a short amount of time. Today’s large put option activity on Micron hits on all of those criteria. Here’s a breakdown of the activity:
- 12,590 1 OCT 21 $70 puts BOT in 3 prints @ $0.83 to $0.94
Notice that the expiration is for this week and is really about playing a drop in Micron on their earnings announcement after the close today. There were three sizable trades that were bought at market with an expectation of the stock moving below $70. In fact, the breakeven of the trade lines up closely with the expected move for this week of around $4.50.
The bearish trade was not just being felt by Micron as the iShares Semiconductor ETF (NASDAQ: SOXX) also had bearish activity today. Here’s the relevant activity on that underlying:
- 4,000 15 OCT 21 $435 puts mostly BOT in 2 prints @ $3.60 to $4.00
- 3,900 15 OCT 21 $425 puts BOT in 2 prints @ $3.20 to $3.40
- 2,000 15 OCT 21 $415 puts mostly BOT in 1 print @ $2.60 to $2.70
Is this trade directly tied to a potential rout in Micron over the earnings? Not necessarily. However, it is coincident and may be reflective of broader issues in the semiconductor industry if largely negative.
Conclusion
The fact is that there is a lot of uncertainty swirling around semiconductors. Yeah, it sounds nice and positive to say there is a shortage, but that doesn’t mean that they are being produced and that Micron is producing the right kind of chips. It may be that they are having trouble capitalizing on the shortage because of production issues. I guess we’ll find out shortly, but someone seems to think they know what’s going to happen.
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