Traders of Micron Technology Inc. stock options are ready for a bigger-than-usual move in the stock, in either direction, after the memory chip company reports earnings after Thursday’s closing bell.
The stock MU, -0.60% lost 0.7% in afternoon trade, and has tumbled 14% just this month, while a popular chip maker index, the PHLX Semiconductor Index SOX, +0.21% has slipped by 2.2% in September, while the S&P 500 index SPX, +0.13% has inched up 0.2%.
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An options strategy known as a “straddle,” which is executed by simultaneously buying bullish (calls) and bearish (puts) options with strike prices at the same, current level, and expiring Friday, is implying one-day post-earnings move of 7.5% in either direction.
Based on the current price of about $45.01, straddle options sellers wouldn’t start losing money, and buyers would start making money, unless the stock climbs above $48.39 or falls below $41.63.
That is a bigger move than history would suggest. Over the past 20 quarters, the average one-day post earnings move has been 6.2% in either direction, including an average gain of 6.8% on the nine up days and an average declined of 5.6% on the 11 down days, according to FactSet data.
Over the past 10 quarters, the average move was lower at 5.6%, including an average gain of 6.7% and average loss of 4.6%.
Sentiment on Wall Street has worsened in recent months, as the stock has tumbled 28% since it closed around an 18-year high in late May. Nearly one out of three analysts surveyed by FactSet have cut their price targets in the last two weeks, amid trade-related concerns and worries about weakening demand and pricing.
On June 21, the day after Micron reported third-quarter results, in which the company beat earnings and revenue expectations and gave an upbeat outlook, the stock had gained 0.8%. But the quarter before, the stock dropped 8.0% despite profit and revenue beats, after the company said it would spend some of its earning to boost production.
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