This week we look at a bullish play in my favorite company in Idaho. No, not ADM Edible Bean Specialties (Ticker: ADM), but the maker of computer memory, Micron (Ticker: MU). Apologies for not making the obligatory potato joke. A 6 month chart shows that Micron has recovered much of the March COVID-19 drop, but not all:
Further, we see that historical volatility has come down significantly, but implied volatility remains a good deal higher (Make sure to look at the absolute value of IV as well). To take advantage, we look to sell some options, in one of two ways:
- Sell 21 August 42.5 puts for 0.51
- Sell 21 August 45/42.5 put spreads for 0.40
- Price is at the midpoint as of 7/17/2020
- All trades are for educational purposes and do not constitute financial advice.
If you want to consider MU as a long term holding, selling a cash secured put will get you in close to $42. As a pure trade, the put spread offers a nice return on risk if the position expires worthless. 19% for a little over a month ($40/$210 = 19%).
There are no earnings during this time frame, which is a benefit to this type of trade (we don’t want movement).
One risk, as with any placed while the world battles COVID-19, is an overall market drop that takes MU with it, much like what occurred in March. Here are a couple ways you can offset some of this risk:
- Sell a call spread, like the 55/57.5 for 0.36. This requires MU to stay within the 45-55 range at expiration and one takes in a total of 0.76 (assuming the put spread is selected)
- Maintain a smaller position size. Put on less spreads than normal to limit the overall risk to your account.
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