Micron Technology Inc (MU) $9.97 -5.50%
Micron Tech (MU) is down 55 cents to $10 and options are seeing heavy trading for a second day. The underlying tone of trading in the chipmaker yesterday was bullish after takeover chatter made the rounds (see 5/16 color). Shares are under pressure today, however, amid weakness in chip names (KLAC, FLEX, ALTR) and 106,000 options traded in Micron so far. 72,000 calls and 34,000 puts changed hands. June 11 calls are the most actives. 11,720 traded and some disappointed investors might be closing out positions opened yesteday when the chatter made the rounds. May 10, May 11, Jul 10 and Jul 11 calls are seeing brisk trading as well. Implied volatality is up 4.5 percent to 46.
Category: All Stocks, Large Cap Stocks, Semiconductors
Comments (4)
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About the Author (Author Profile)
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.
Perhaps it might be wise to short with put options all stocks exhibiting takeover chatter. OMX and MU are two stocks among many that have tanked after Briefing.com cited “takeover chatter”. The “unusual option activity” is either hedge funds faking out the marketplace or it is a group of suckers hoping to hit it big overnight. Very rarely is the activity done by in-the-know traders.
Ya, I’ve contacted them and asked what percentage of the chatter they report actually happens and never got a reply. Mostly BS, but it does affect the options and sentiment. That’s why I report it.
Interesting OMX seeing some increasing call buying in recent trade.
Fred, thanks for contacting them. It would be interesting to find out what percentage of chatter actually pans out. I still do not understand where the chatter originates and how they determine that it is takeover chatter or if they are just guessing. You said that the activity influences the sentiment and options. What strategies are best used to exploit that? Perhaps, selling a call at an inflated IV and purchasing a put?
Thanks
Good question. I would take it case-by-case because if the stock has good fundamentals, I wouldn’t place a bearish trade on it. For example, SYMC was mentioned yesterday. I think it’s a viable takeover play, even though there was probably little substance to yesterday’s chatter. One idea is to do the buy-write on quality stocks when there’s chatter in the name. If they’re buying SYMC Sep 25 calls, for example, do the SYMC Sep 25 covered call. But if it’s clearly non-sense and you don’t like the stock’s fundamentals, than you’re idea for a bearish risk-reversal makes sense. The biggest risk is that a deal actually happens and the stock surges.