Trade Alert: Time To Get Back Into Micron
And three other names in our technical "Goldilocks zone" (not overextended, but not broken down) after the current pullback. Bullish options trades on all four are below.
Back In Range
Last week, in “Partying Like It’s Still Not 1999”, we wrote that Micron’s blowout earnings and guidance supported our argument that the current AI boom isn’t just a rerun of the dot-com bubble.
The better AI-infrastructure names are producing real revenues, real earnings, and real demand signals. That’s a very different backdrop from 1999. At the time, we said we weren’t planning to chase Micron after its post-earnings run-up.
Now the stock has pulled back.
The pullback has been sector-wide. After a huge first-half run in AI hardware and memory names, investors have started rotating out of some of the biggest winners, helped along by renewed concerns about AI infrastructure spending and future overcapacity.
That’s exactly why we waited. Micron’s earnings helped confirm the demand side of the thesis, but the post-earnings spike left the stock stretched. This week’s pullback has moved it back into our preferred entry range.
Fundamentals Get A Vote
We’re not just looking at technicals here—we’re looking at fundamentals too.
In “Fundamentals Get A Vote”, we wrote about why fundamentals matter more in a whipsaw market.
Technical strength can get us into good setups, but stronger fundamentals can help those setups survive volatility. That applies to today’s trades.
We’re looking at four names that pass our technical screens and also have decent-to-strong fundamental scores. They aren’t all the same trade. One is tied to memory. One is tied to storage. One is tied to chip architecture. One is a less obvious IT infrastructure/channel name that surfaced from Portfolio Armor’s Top Names.
The common thread is process. We have attractive themes, acceptable fundamentals, clean technicals, and defined-risk structures with asymmetric upside potential.
Priced To Fill, But Not To Be Chased
We priced each structure using three options-pricing methods: Black-Scholes, Bjerksund-Stensland, and Cox-Ross-Rubinstein/binomial. Then we used the most conservative fair-value estimate from the three.
One of these trades has a debit, meaning we’re paying premium to enter the trade; the other three are credit trades, meaning we’re collecting premium to place them. For the debit trade, we’re making sure that the net debit we pay is below conservative fair value. For the credit trades, we’re making sure the net credit we collect is above conservative fair value.
That’s the discipline.
We’re either going to get filled on terms that are favorable versus model value, or we’re not going to take the trades.
We’re not chasing.
Our Micron structure is designed to generate a 192% return on max risk if Micron reaches the high end of the options market’s implied range over the next several months. It can also produce a modest profit if Micron drifts sideways or even declines somewhat over that period.
Full details below, including our pre-set exit orders so we can cash out of winning positions automatically without babysitting the trades.
Today’s First Top Names Trade
IT infrastructure / AI channel theme
