Options market-makers are pricing a 7% move for Micron after Wednesday's earnings, below its recent average swing. Flows leaned bullish into the print, while bond prices are selling off at their fastest rate all year.
Options market-makers priced Micron for a 7% move Wednesday after the bell, slightly below the stock's four-quarter average swing of 8%. For a stock that stalled three months ago when the collapse of hedge fund Situational Awareness rattled the AI trade, a more measured move is what traders want.
Bullish flows lean into the print
Options flows in Micron leaned bullish Tuesday, with 61,000 calls likely bought against 37,000 puts, according to Cboe LiveVol and SpotGamma data. 75% of the $1.6 billion in premium traded was tied to calls. Some of the call-selling centered on the 1,150-strike, a bet the stock won't clear its implied earnings move rather than a bearish wager on the company.
An about-equal number of puts and calls were open as of Monday's close, near a one-year low for Micron's put-to-call ratio, according to Barchart data. Jason DeLorenzo, owner and founder of options-analytics platform Volland, said dealer positioning is more uniformly bullish than in some of Micron's prior earnings reports, adding that unwinding existing negative hedges could push the stock toward what the options straddle is pricing in.
Open interest in puts between the 980 and 1,000 strikes is high enough that, should Micron disappoint, those protective positions would likely draw profit-taking and cushion the stock, DeLorenzo said. Data from Opti-View show 34,000 open puts at the 1,000 strike, while the most popular call strike sits at 1,200. According to DeLorenzo: "If 1,150 breaks, 1,300 will not be far behind."
A bond sell-off is the wildcard
Bond prices are selling off at their fastest rate all year, based on the 14-day RSI on the iShares 20+ Year Treasury Bond ETF, pushing rates higher. Stock indexes outside small-caps have largely shrugged it off so far, but higher rates could eventually weigh on shares. Don Kaufman, cofounder of TheoTrade, warned even the AI trade isn't immune to the bond market's swings.
Source: CNBC
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