New Trade Alert for Micron Technology (MU)
Buy MU July $45 Call @$10.00 or less
NDX Nasdaq 100 big boys of Tech bounced back once again to within 3% of the record tip top.
Chip maker Micron Technology momentum move rocketed 370% in the last five years.
It has been foolish historically to think the Tech top is in …money flows have every time in the past moved back in after profit taking.
MU stall has the stock stuck from $45 to $60 for two months. The “V”recovery target is $75+.
Lean on the $45 midpoint support.
The initial objective is a recovery rally back to the $63 high from March just a few months ago..
The Options Way: Unlimited Upside Potential with Limited Risk.
A MU long call option can provide the staying power in a potentially larger trend extension. More importantly, the maximum risk is the premium paid.
One major advantage of using long options instead of buying or selling shares is putting up much less money to control 100 shares, that’s the power of leverage.
Choosing an option can sometimes be a daunting task with all of the choices and expiration months. Simply put, traders want to buy a high probability option that has enough time to be right.
The option strike price is the level at which you have the right to buy without any obligation to do so. In reality, you rarely convert the option into shares. Simply sell the option you bought to exit the trade for a gain or loss.
There are two rules options traders need to follow to be successful.
Rule One: Choose an option with 70%-plus probability. The Delta is a measurement of how well the option reacts to movement in the underlying security. It is also important to buy options that payoff from only a modest price move.
There is no need to ONLY make money on the all but infrequent long shot price explosions.
Good Options can profit from just modest directional moves.
Any trade has a fifty/fifty chance of success. Buying In The Money options increase that probability. That Delta also approximates the odds that the option will be In The Money at expiration.
Buying better options are more expensive, but they are worth it. The chances of success are mathematically superior to buying cheap, long shot Out Of The Money lottery tickets that rarely ever pay off.
With MU trading at $53.70, for example, an In The Money $45 strike option currently has $8.70 in real or intrinsic value. The remainder of any premium is the time value of the option.
Rule Two: Buy more time until expiration than you may need — time for the trade to develop. Time is an investor’s greatest asset when you have completely limited the exposure risks.
Traders often buy too little time for the trade to develop. Nothing is more frustrating than being right, but only after the option has expired premature to the market move.
Trade Setup: I recommend the MU July $45 Call at $10.00 or less.
Notice this $45 level is midpoint support of the one year price action. MU has not traded below $45 since end of February.
An option play also has staying power with the ability to ride through Ups and Downs that would force most stock traders out of the position.
The option also behaves much like the underlying stock with much less money tied up in the investment. The Delta of this $45 strike is 82. That also approximates the probability that the option will be in the money at expiration.
The June option has two months for bullish development.
The maximum loss is limited to the $1000 or less paid per option contract with an exit stop loss at half the option premium to reduce dollar exposure. The upside, on the other hand, is unlimited.
The MU option trade break even is $55 at expiration ($45 strike plus $10.00 or less option premium). That is a dollar above the stock current price.
An attack on the $63 old highs would put the option value at $18.00 to nearly double the original investment.