Shares of chipmaker Micron Technology (MU) are down nearly one-third over the last year. One trader sees a further decline ahead for shares in the coming weeks.
That’s based on the March 3 $48 puts. With 42 days until expiration, 2,658 contracts traded compared to a prior open interest of 103, for a 26-fold rise in volume on the trade. The buyer of the puts paid $0.52 to make the bearish bet.
Shares recently traded for just over $56, so they would need to fall $8, or about 15 percent in the coming weeks for the options to move in-the-money. A price of $48 would also be right at Micron’s 52-week low, set back in December.
Micron has been hurt by the economic slowdown of the past year. Revenues are down 47 percent, and the company has been haphazardly profitable in recent quarters.
That said, shares most recently went for about 10 times earnings, and trade at their lowest valuation in years on an earnings and sales basis.
Action to take: Investors may want to pick up shares at a price near $50. That would be close to the recent lows and a solid valuation for a long-term recovery in the chipmaking space. That would also give shares a dividend yield just under 1 percent for starters.
For traders, the March puts are well positioned for a short-term market pullback in the coming weeks. Traders can likely nab mid-to-high double-digit returns.
Disclosure: The author of this article has no position in the company mentioned here, but may trade after the next 72 hours. The author receives no compensation from any of the companies mentioned in this article.