Bull v. Bear: Will MU Continue to Surge After Earnings?

0:00Welcome back to fast marking here on Swap Network Micron, set to report quarterly results after the close to J. The street is projecting earnings of 880 per share on revenue of nearly 20 billion. Investors will be looking for Micron to follow through on the memory pricing hype. Alice, our projecting event for memory will remain high through 2027, which votes well for Micron. Keep in mind shares will climb more than 60% this year, up more than 350% year over year. All right, time now for the tug of war on Micron for that. Let's welcome back in our co-host Tom White and Joe Madola. It is full versus a fair time. So before we get to your example, Trace, we've got to talk about your thoughts on Micron. Joe, I'll start with your take. Well, look, earnings expectations are high. Looking for about record revenue of 19.7 billion. That's up, Diane, 146% from the 8 billion last year. Looking for adjusted EPS of around $9.19, $1.56 higher than last year.

1:00So being looked at the street is pricing in some pretty high marks for the company. And look if you look at some of the other markets and how they're pricing it, they're expecting a beat. And I would probably do so as well. I think what's interesting is how much of that is priced in. And that's what Trader really need to figure out at this point. We mentioned the 60% move here to date, broke out of a recent range here, where we've been in that kind of that that's that 360 to 450 range, it broke out of that. And now we're pricing in about a nine and a half, maybe even a 10% move. And where would that take it, right? That could take it all the way up to maybe 510 or 520 on the upside and maybe down to like 430 on the downside. So we've had a big explosive move already. And it looks like a market's are pricing even a bigger move, post-nearnings. Tom, your thoughts on this one? Yeah, and this quarter last year, they made on EPS about a buck 56, right?

2:03I think Joe gave us the whisper number above nine bucks. I think a lot of people are expecting it to be far above nine bucks. I think we've got 880 as a consensus mark for this and on a percentage basis, that's just amazing. I think one of the key things here is you look at the trailing PE of about 44, right? You can throw that out the window because the forward looking PE is below 15 right now. And that's because the E continues to grow. I know Joe likes to talk about that, but the earnings continue to grow due to demand. And what happens when demand outstrips supply? While pricing goes up and pricing is going up exponentially, we've seen it out of SK and SEMSUNG, some of their competitors, Western Digital here, Sandisk, STX here, domestically. They've all talked repeatedly about the pricing and the increases that they're allowed to pass on to customers just due to that high demand. When you've got over $600 billion in CAPEX from just the four top tech companies that

3:07these memory chips go into just for this year, that's pretty astounding. And they're sold out through this year, right? And into probably halfway through 2027, so it's not going to pull back any time soon. The bar is really high in this one, but maybe it should be. Okay, so maybe it should be, so that begs the question, who is BOL and who is the bear in this one? All right, I have an indication of where you guys are going, but let's start out with you, Joe. What's your example trade today? So I'm looking at selling a put spread. I don't want to do it, though, for the March 28th expiration, I want to go out a week and I, and my thoughts behind that are, you know, if you do get one big move in either direction, we've seen it recently with some of the other stocks where that's in BIDI, or other, other chip stocks, maybe not so much in the memory because we're starting to see more and more of those names come out now. But with those, sometimes you see a snapback. So if you get one big move, I want to give it a little bit of time to see if the stock kind of, you know, finds a, finds a range and settles down a little bit.

4:10So Tom, I know you had a look at this one. Your thoughts on it before you jump into yours? Yeah, this is that passive, you know, type of strategy where, hey, you can still take a directional bias, but you don't have to be aggressive about it, right? Because you can profit in three out of four scenarios on this type of Joe's neutral to bullish short put vertical here. He went out to the March 27th weekly cycle, though. So he's given himself an extra week. He got nine days in this position. So not a pure earnings look at this one. So even if you do get a pullback, you've still got a little bit of duration on this one, but still taking advantage of high implied volatility levels in the stock going into the report, the option market pricing in about a plus or minus $32, $33 move either way in the shares on this one. That's about 7%. But Joe sold the March 27th weekly for 30 put, bought the 425 put just a short $5 wide neutral to bullish put vertical here, collected roughly about $1.20 credit on there. That's what you can make on this trade, $120 bucks with about $380 in risk, but it takes

5:15your break even all the way down to $4.28, $80 about that one standard deviation below the current share price in micron here, which is basically about 468 at this point. So yeah, we've got neutral to bullish, you profit in this one if the stock goes up stock consolidates here, or goes lower, but remains above that break even price of about $4.28, $80 to the downside on this one. So keep that in mind, higher probability of success on this one. If you look at the 430 strike put, you got a probability of about 71% that it'll be out of the money at expiration. Now I flipped it, same type of strategy, but different duration and maybe a little bit wider on this one. If you wanted to take a bearish outlook on this stock, this may profit from that if the stock doesn't go up too much. So I went out to the March 20 monthly options that expire in just two days.

6:16So shorter term, shorter duration, this is an earnings type of example that we're looking at here. Where I'm going to sell the out of the money, 500 strike put, and then against it by the 510 strike put, you're going to collect a credit of roughly about $2.25 credit. It might be about a dime lower than that right now, but the credit you collect on this one is what you can make, $225 per spread with about $775 in risk. But it takes your break even all the way up to 502.25 to the upside. So you've got about that one standard deviation move to the upside as protection. Also on this one, Joe, we did the same type of positioning where we were a little bit more passive on these type of trades. But maybe you should be because you want a better probability of success in such a high price stock, a volatile stock, implied volatility levels are elevated on this one, Joe. Yeah, sorry, you guys lost my audio earlier in my apologies.

7:16I think the key to both of these trades is because the move has been so volatile over the last year or two that you can actually sell spreads for a decent amount of credit that are pretty far away. So I think both of us are trying to keep those maybe outside of that standard deviation or pretty down close to it for the one day move. I'm holding my duration a little bit longer of what I was trying to explain before was that sometimes when you see moves like this, post earnings, whether it's Nvidia or what we've seen with some of the other names in technology, is that you get them one move, one way, and then it might kind of auto correct itself over some time. So that is one of the things that I'm looking at with selling that put spread a week out. I think with Tom's trade, either way, both of us are taking kind of passive positions where we're saying that we don't expect or at least pricing as if we don't expect a move outside of maybe seven or eight percent. But time will tell, and the good news about these is they are risk-defined, right?

8:20So we'd never show you anything that is undefined to risk and these are both spreads that we know the max loss going into it. Yeah, I think that's key Joe on these where on such a high-priced stock, 468 bucks, the potential of maybe a $33 move either way in the stocks, but giving us high probability of success. Diane, I always like to look at these type of strategies as in a baseball analogy, we're trying to hit singles and doubles on this instead of swinging for the fences. You can be aggressive, but these two strategies are just higher probability of success on them. I love the sports analogies, and we've got to call vertical versus a put vertical. All right, good stuff, guys.