Micron Technology Bear Call Spread Could Net 16% in Five Weeks

Micron Technology (MU) stock was a bearish candidate that came up on one of my Barchart Stock Screeners that searches for stocks crossing below their 50-day moving average and have a high IV Percentile.

Here are the full parameters for the screener and the results.

Today, we’re going to look at a Bear Call spread trade that assumes MU will struggle to get back above the 430 level in the next few weeks. 

A Bear Call spread is a bearish trade that also can benefit from a drop in implied volatility.

The maximum profit for a Bear Call spread is limited to the premium received while the maximum potential loss is also capped. To calculate the maximum loss, take the difference in the strike prices of the long and short options, and subtract the premium received.

MU Bear Call Spread

To create a Bear Call spread, we sell an out-of-the-money call and then by another call further out-of-the-money.

Selling the August 21 call with a strike price of $1100 and buying the $1150 call would create a Bear Call spread.

This spread was trading for around $7.10 yesterday. That means a trader selling this spread would receive $710 in option premium and would have a maximum risk of $4,290.

That represents a 16.55% return on risk between now and August 21 if MU stock remains below $1100.

If MU stock closes above $1150 on the expiration date the trade loses the full $4,290.

The breakeven point for the Bear Call spread is $1107.10 which is calculated as $1100 plus the $7.10 option premium per contract.

Company Details

The Barchart Technical Opinion rating is a 64% Buy with a Weakening short term outlook on maintaining the current direction.

Long term indicators fully support a continuation of the trend.

Through global brands, namely Micron, Crucial and Ballistix, Micron manufactures and markets high-performance memory and storage technologies including Dynamic Random Access Memory, NAND flash memory, NOR Flash, 3D XPoint memory and other technologies.

Its solutions are used in leading-edge computing, consumer, networking and mobile products.

Conclusion And Risk Management

One way to set a stop loss for a Bear Call spread is based on the premium received. In this case, we received $710, so we could set a stop loss equal to the premium received, or a loss of around $710.

Another stop loss level could be if the stock broke above $1050.

Please remember that options are risky, and investors can lose 100% of their investment. 

This article is for education purposes only and not a trade recommendation. Remember to always do your own due diligence and consult your financial advisor before making any investment decisions.