Shares of semiconductor company Micron Technology (MU) have lost one-quarter of their value in the past year. One trader sees a possibility for further downside in the months ahead.
That’s based on the December $52.50 puts. With 156 days left until expiration, 14,048 contracts traded compared to a prior open interest of 500, for a 28-fold rise in volume on the trade. The buyer of the puts paid $4.28 to bet on shares further declining.
Shares recently traded for about $57.80, so they’d need to drop a full $5.00, or just under 11 percent, for the option to move in-the-money.
Despite the slide in shares, earnings are up 51 percent over the last year, and earnings are up about 16 percent. While that may slow in the coming quarters, the stock is still inexpensive at 8 times forward warnings, down from 30 times earnings over a year ago.
Action to take: Investors may like accumulating shares in the low $50 range. That would put the stock near its 52-week low just over $51. Shares currently yield about 0.8 percent, with room for further growth in the dividend as earnings continue to grow.
For traders, the puts are a good short-term hedge against a further market decline in the coming weeks and months. Traders can likely nab mi-to-high double-digit profits in the coming months from the option, but should look to exit the trade quickly if it looks like markets may turn bullish.
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.