Subject: This Chip is in a Dip

Dear Friend,

Today we bring you a brand new Trade of the Week! Each week we share a new trade idea directly from our trading team.

Terry

October 5, 2021

Week 667

This Chip is in a Dip

Chipmaker Micron Technology (MU) reported earnings this week that beat estimates on both the top and bottom lines. But the company issued guidance for the fiscal first quarter that fell below expectations. The forecast reflects the long uphill climb facing the industry before it emerges from the global chip shortage. Wall Street analysts reacted with several target price decreases, although the new targets remain above MU’s current price.

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Since hitting a record high in April, MU has been sliding, falling 27%. The 50-day moving average has guided the decline, allowing just a handful of daily closes above it. Currently, the trendline sits just above 74. While the sector - and MU - will eventually emerge from the chip shortage, it certainly won’t happen in the next several weeks. This trade – a bearish call credit spread - is a bet that the downtrend will continue in the short run. Note that the short 75 strike of this spread is above the 50-day, meaning that the stock will have to break this resistance to get our trade in trouble.

If you agree that MU will stay below 5-day moving average ( (blue line in chart) line in chart), consider the following trade that relies on the stock remaining beneath 75 (red line in chart) through expiration in seven weeks.

Buy to Open MU 19Nov 77.5 call (MU211119C77.5)
Sell to Open MU 19Nov 75 call (MU211119C75) for a credit of $0.60 (selling a vertical)

This credit is $0.03 less than the mid-point of the option spread when MU was trading at $71. Unless the stock falls quickly from here, you should be able to get close to this amount.

Your commission on this trade will be only $1.30 per spread. Each spread would then yield $58.70. This trade reduces your buying power by $250 and makes your net investment $191.30 ($250 – $58.70). If MU closes below $75 on November 19, both options will expire worthless and your return on the spread would be 31% ($58.70/$191.30).

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Any questions? Email Colin@terrystips.com

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I look forward to having you on board, and to prospering with you.

Terry

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Subject: This Chip is in a Dip

This Chip is in a Dip