On Monday, Susquehanna International Group options strategist Christopher Jacobson highlighted the upcoming earnings report from Micron Technology, Inc. (NASDAQ:MU) as a significant potential catalyst for the semiconductor sector. Options for MU are pricing in a low double-digit move for the week, which is higher than the average move of +/- 8.0% seen over the last eight quarters. The recent trend, however, aligns with this expectation, as the past three reports have seen more volatility with movements of +/- 10% or more.
SFG Technology Hardware analyst Mehdi Hosseini maintains a Positive rating on MU shares with a price target of $165. Despite near-term softness in DRAM/NAND average selling prices, Hosseini anticipates that MU’s increased market share in HBM and DDR5 will bolster its earnings potential to the $10-$15 range. He also notes minimal downside risk from competition, citing it would take Samsung (KS:005930) at least a year to rectify its DRAM and NAND technologies. The stock’s risk/reward profile is considered compelling, with expectations that the February quarter guide may fall below consensus.
In anticipation of the earnings report, Susquehanna revisited the strategy of owning Western Digital Corporation (NASDAQ:WDC) options to potentially capitalize on any sympathetic market movement. This approach has been less consistent recently, but last quarter’s results showed MU’s stock rising by 14.7% and WDC by 6.8% in sympathy.
Analysis of the last eight MU earnings reports shows that owning MU earnings volatility has been largely fair, with the straddle up 1.5% on average, trading higher four times and lower four times. Conversely, the WDC straddle has been up in 5 of the 8 corresponding MU reports, with an average gain of +22.0%. While the WDC straddle is higher than in previous MU reports, there is still potential for decay, and the MU straddle is also elevated.
For those expecting the semiconductor sector to continue to experience significant movement, the SMH weekly straddle closed on Friday with around a 3.3% move. Over the last eight MU reports, SMH has seen an average realized move of +/- ~2.2%.
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