As noted yesterday afternoon, the Trade of the Day for Monday is in Micron Technology (MU). It is based on a “smart money” trade that surfaced midday yesterday. The spread is straightforward. The investor paid 30 cents for April 10 calls and collected 12 cents for April 11 calls. Shares are up 10 cents to $8.65 and this spread has a breakeven at expiration at $10.18, or almost 30 percent above current levels. It’s interesting because yesterday wasn’t the first time the spread has traded. Open interest in both contracts is now more than 67,000. This is a very speculative high risk-reward play. The potential pay-off is 82 cents if shares rally to $11. So, the strategist is risking 18 cents to make 82, a ratio of 4.5-to-1. I’d probably exit the trade if the stock isn’t trading above $9.50 by the February expiration. (MU April 10 – 11 call spread at 20 cents or better).
Today’s Trade of the Day will open a new EBAY put fly similar to the one on 8/25. We also want to exit the HGSI backspread from 11/8 at $2.00.
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Frederic Ruffy is a well-known trader, writer, and strategist who has spent years educating investors and creating intelligent, insightful, unbiased market observations that are frequently cited by the Wall Street Journal and other financial publications. As senior analyst, Fred provides frequent and regular notes and daily updates for activity of interest.