How bulls and bears are positioned in chip trade
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Micron Technology‘s monster post-earnings rally is almost over.
Shares of the memory chip maker fell to $1,023.65 on Monday, down 18% from a 52-week high reached on Thursday. Monday’s session low is about $25 below the stock’s closing level on Wednesday, before Micron reported fiscal third-quarter earnings that beat analyst expectations.
The sharp reversal has spurred some dip buying among options traders on Micron, but flows in the sector remain sharply divided depending on the stock or ETF.
Shares of Micron Technology over the last five trading sessions
At Micron, call volume outpaced sales, but probably more calls were sold than purchased, according to data from ThinkOrSwim. According to SpotGamma data, $1.6 billion of the $2.2 billion in premium traded through midday Monday was tied to calls; Seven of the top 10 contracts, according to bulk calls, all expired on Thursday.
VanEck Semiconductor ETF (SMH) Despite Micron’s decline, it was up nearly 3% on Monday. Seagate Technology And Western Digital 8% and 10% were added respectively. The last two stocks rose following a bullish trend with Melius Research saying both could recover about 60% from current prices.
Call volume nearly doubled at Seagate and Western Digital, but the two traded fewer than 40,000 options combined. At Western Digital, where approximately 27,000 contracts were traded, 3,000 calls were purchased compared to only 1,000 puts. The most popular contract by volume was the 700-inning call, which expires Thursday; this was an $8.50 trade that needed a 10% rise to pay off.
Flows in the SMH ETF have been markedly bearish, as they have been for much of this summer, with sales volume three times higher than purchases. Investors purchased almost 11,000 puts versus only 3,500 calls.
Volatility in SMH is around 60; This makes it a preferable tool for hedging compared to single stocks where implied volatility is still the highest in the market. The most popular contract on SMH is the 560 strike contract that expires on August 21.
Bulls still showing preference Roundhill Memory ETF (DRAM)Where nearly 300,000 contracts were traded and more than twice as many calls were made as puts. Still, even the enthusiasm here may be waning a bit as more calls are sold than purchased.
A bullish trader in DRAM raised more than $3 million by selling 2,200 of the 80-strike puts expiring December 18 for $5.2 million and buying almost 3,000 of the 40-strike puts expiring June 2027 for $2 million.
