$Micron Technology(MU)$ is set to report its earnings today after the market close. One observation I made is that it has been moving within a range of $48 to $65 since June 2022. In this post, I will explain my strategy for trading Micron ahead of its earnings, and why I expect the stock to remain within its current range.
Micron (MU) Overview
Micron Technology, Inc. is an American multinational corporation that produces many forms of computer memory and data storage, including DRAM, SDRAM, flash memory, and solid-state drives (SSDs). Micron is an industry leader in memory technology and is a vital component of many electronic devices.
MU has been trading between $48 and $654 since June 2022
Based on the day chart above, the stock has been trading between the range of 48 to 65 since June 2022. Yesterday MU closed at the price of 59.79, which is close to the midpoint of this range. It is important to note that the stock has been in an uptrend and has been rising for consecutive 7 trading days from 16 Mar 2023 except for yesterday where it dropped 2.24%.
Earnings Report
Micron (MU) is reporting earnings today (28 Mar 2023) after the market close. it is unlikely that there will be a positive earnings report due to high inventory levels and dropping memory prices, lower demand amid high inflation, and growing concerns over economic slowdown.
While it has been in an uptrend lately, the high inventory levels and dropping memory prices, coupled with lower demand amid high inflation and growing concerns over economic slowdown, make a positive earnings report unlikely. Even if there is a positive earnings report, the upside should be limited. Hence, I expect the stock to remain within the range of $48 to $65.
I am hopeful that the stock will drop following the earnings release, and possibly trend even lower with the market given the macroeconomic uncertainty. With this in mind, I plan to employ the options wheel strategy on MU stock.
Employing Options wheel strategy
The options wheel strategy involves selling cash covered put options at a strike price of $48 $MU 20230428 48.0 PUT$ . I hope that the drop will increase the collectible premium to $1 and above from selling put options at this price. In the event that MU does not drop to the price I want, I will just repeat and keep selling put options and earn the premium while waiting to buy MU.
If MU's price drops and the put option is exercised, I will buy the stock at the price of $48. After deducting the premium, my cost for purchasing MU will be above $47 per share. It is good that the per-share cost for MU is not high, and I will only need to keep around $5,000 in my account for this purchase.
After owning the stock, I will start selling covered call options at a strike price around $65 $MU 20230428 65.0 CALL$ . If the stock remains below my strike price, I will earn the premium from selling the call option and can sell another call option at a later date. This situation should not drag on too long as I believe Micron will rebound in the later part of the year.
Anticipating a Rebound in Micron
Micron is a company that is heavily reliant on the memory chip market. The prices of memory chips are known to be cyclical, meaning that they experience periods of high demand and prices, followed by periods of oversupply and low prices. As a result, Micron's stock price also tends to be cyclical, as it is highly correlated with memory chip prices. As the whole memory industry is cutting production since the start of fed interest rate last year, the cycle is like to bottom out soon and will rebound in future (maybe by end of the year). In addition, Micron is one of the major semiconductor companies with fabs in the heartlands of the USA and will benefit greatly from the chips act.
Long Call Condor Option Strategy for the short term
For more experienced traders, they may want to employ the long call condor option strategy to profit from the prediction that the stock will continue to trade within the range of $48 to $65 even after the earnings report. The long call condor option strategy involves buying a call option with a lower strike price and selling a call option with a higher strike price, while also buying another call option with an even higher strike price and selling another call option with an even lower strike price.
Summary
In conclusion, Micron is a cyclical stock that is subject to memory price cycles. By employing the options wheel strategy and selling cash-covered put options, I hope to benefit from the expected drop in price following the earnings release. With the options wheel strategy, I can earn premiums while waiting for a good buying opportunity. Even if the stock does not drop, I can repeat the process and keep selling put options.
Thank you for reading.
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