Market Insights

Micron Technology has struggled along with other chip stocks lately, but one trader is positioning for a rebound.

Check out this unusual options activity yesterday:

• 17,000 July 120 calls were purchased for $3.80.
• 17,000 July 130 calls were sold for $2.54.
• Volume was more than 4 times open interest in both contracts, which suggests new positions were implemented in both.
• The net cost was $1.26.

Calls fix the level where investors can purchase a security. They can appreciate when stocks rally but become worthless if prices don’t reach the strike price on expiration. Traders can also sell them to generate credit. Tuesday’s trade was apparently a vertical spread, which combines buying and selling options to limit cost.

Micron Technology (MU), daily chart, showing key indicators and patterns.

The position can expand to $10 if the memory-chip maker closes at $130 or higher on expiration. That’s a potential profit of 694 percent (based on the $1.26 outlay) from the stock climbing 47 percent by July 18.

MU fell 3.1 percent to $88.25 yesterday but is up about 5 percent so far this year. The shares have been stuck in a range between roughly $80 and $110 since August. They peaked above $150 last summer, but fell along with the broader semiconductor industry on worries about trade restrictions.

Tuesday’s vertical spread effectively targets a rebound toward MU’s levels before the crash. The strategy also covers two earnings reports, which could potentially trigger rebounds.

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