Micron Technologies
Micron Technology Inc. investors should expect to be surprised when the company reports earnings, as the options market is preparing for a bigger-than-average post-results reaction in the stock.
The memory-chip maker MU, -0.31% is scheduled to report fiscal second-quarter results after Thursday’s closing bell. Investor and analyst expectations appear to be running relatively high, as six analysts surveyed by FactSet have raised their stock-price targets in the past week while only one has trimmed their target.
And the stock, which is already the PHLX Semiconductor Index’s SOX, +0.65% best performing component this year, as well as over the past 12 months, has gained 2% the past week while the chip-sector tracker (SOX) has lost 0.5% and the S&P 500 index SPX, +0.25% has shed 0.8%. It closed Tuesday at the highest level since September 2000, before pulling back 0.3% in midday trade Wednesday.
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Despite the bullish bias, options traders are casting a wide net for how the results might affect the stock. A strategy known as a “straddle,” which is executed by simultaneously buying bullish (calls) and bearish (puts) stock options at current (at-the-money) prices, is implying a potential 7.2% move in either direction on Friday. Read more about “straddles.”
Based on the current price of $60.96, that means straddle buyers wouldn’t start making money unless the stock climbs above $65.36 or falls below $56.56.
That would represent a bigger move than history would suggest, unless options traders are actually leaning toward a post-earnings rally.
The average one-day move has been 6.0% in either direction the day after the previous eight quarterly reports and 6.4% after the previous 20 reports. The median move was 6.3% for both time periods.
But for post-earnings moves in which the stock advanced, the average move has been 8.1% over the past eight quarters and 7.9% the past 20 quarters. The average decline has been 3.4% the past two years and 5.2% the past five years.
Last month, Micron raised its earnings and revenue outlook for the current quarter, and MKM Partners analysts said in a recent note to clients that third-quarter guidance from the company has room to move higher, given DRAM and NAND pricing has been tracking above consensus expectations. That said, MKM analyst Ruben Roy cautioned that a lot of good news may already be reflected in share prices.
The stock has soared 37.2% over the past three months, while the SOX has climbed 11.3% and the S&P 500 has gained 1.6%.