Micron Technology, Inc. (NASDAQ:MU) with its market capitalization of $34.77B is a global manufacturer and marketer of semiconductor devices, principally NAND Flash, DRAM and NOR Flash memory, as well as other memory technologies, packaging solutions and semiconductor systems for use in computing, consumer, networking, automotive, industrial, embedded and mobile products.
Micron Technology is one of those affordable technology stocks that can’t seem to do anything wrong in this market. The stock made a new $34.85 high on September 29 and the bullish sentiment on the stock does not appear to be losing steam. The stock is already up some 76.50% in the last one year, it is up 48.89% in the year-to-date period and the stock is already up 0.18% to 32.63 as at 12:06PM EDT today.
Why I am Optimistic about MU Options
One of the factors that have been responsible for Micron Technology’s recent bullish run is the quality of its fourth quarter (Q4 2014) and 2014 fiscal year financial reports. In the fourth quarter, Micron reported revenue of $4.23B to mark a 6% sequential increase and a 49% year-over-year increase in revenue.
The company reported fourth quarter earnings of $0.82 per share to beat the consensus estimate of $0.81 per share and to outperform the earnings of $0.79 that was reported in the same period last year. For the FY 2014, Micron reported revenue of $16.36B and earnings of $2.54 per share.
The second reason I am excited about the potentials inherent in Micron Technology is that the stock is currently undervalued. The stock currently has a PE ratio of 10.67 compared to an industry average of 19.42. In addition, the stock has a PEG (5-year expected) of 0.56 and a P/S ratio of 2.24.
How to Trade MU Options
The stock chart above shows how shares of Micron Technology have traded in the last one year. $21 was an important key level for shares of Micron Technology in January and April as it provided an important support level from which the stock rose by about $4 to a new $25 high. $30 became an important support level for Micron in August and in September from which the stock rose to new highs around $33 and $34.
Shares of Micron Technology nose-dived on October 1, but it seems that the support is holding at $32, as the stock seems to be heading back to a rally today. If the support fails to hold at $32, we can expect that the support will surely hold at $30. However, I am optimistic that the $32 support will hold and that the stock will be heading towards $35 or $36 soon enough.
Since we have established that the support will hold for Micron Technology at $30 and that a breakout to $35 is in the books, I will play MU options with a long straddle. Hence, I recommend making a long straddle with the MU Jan 2014 40 options contract. We buy the MU Jan 2015 34.000 call (MU150117C00034000) for $2.05 and buy the MU Jan 2015 34.000 put (MU150117P00034000) at an asking price of $3.60.
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