Earnings Volatility: Micron Options Show Stock May See Outsized Swings After Earnings

Stock prices may see larger-than-normal moves during earnings season, making it a potentially attractive time for options traders. For investors looking to trade against these moves, you should always keep track of how the options might shift after their earnings. Here are the top earnings and volatility for:

-Earnings Date: 09/27 after market close

-Implied Move: 6.2%

-Absolute Average Actual Move for the past 4 Quarters: 3.7%

-Absolute Average Actual Move for the past 12 Quarters: 4.5%

-Earnings Normalized Estimate: $-1.315 per share

-Revenue Estimate: $3.925 billion

According to recent data from Market Chameleon, options for Micron are overvalued comparing to its historic average, with the implied move of 6.2% higher than the average actual move for the past 4 quarters (3.7%) and past 12 quarters (4.5%). The options market overestimated MU stocks earnings move 67% of the time in the last 12 quarters.

Micron calls are slightly outnumbering puts with the October 20th 75.00 call being the highest volume contract (volume is 6409).

Micron is a manufacturer of DRAM and NAND memory semiconductors. While NAND flash memory chips are utilized in smaller devices like smartphones and USB drives, DRAM, or dynamic random access memory, is the memory type frequently employed in PCs and data center servers, MarketWatch's Wallace Witkowski reported.

Micron's 1-beta DRAM chips for data centers, which are increasing demand for the technology required to support large-language models and generative AI, like Open AI's ChatGPT, are one segment for investors to keep an eye out for. Micron began shipping the 1-beta to certain smartphone makers and chipset partners last November.

Before significant corporate events such as earnings announcements, product launches, or clinical trial results, implied volatility tends to increase. However, after the news has been released, the implied volatility can drop significantly due to the sudden clarity in the market and the stock price reaction to the news. This phenomenon is referred to as IV crush.

IV crush can lead to a decrease in option prices because the Implied volatility is lowered dramatically. This decrease in option prices due to IV crush can be a risk for options traders who have purchased options at a higher price with the expectation of making a profit from a significant move in the underlying stock price. Conversely, IV crush may not be as prevalent if the option is undervalued and the stock price moves drastically, which can pose a risk for option sellers. It's important for traders to be aware of IV crush and factor it into their trading strategy when considering options trades around significant corporate events.

Not all options are affected equally by an IV crush. IV crush affects short-term option prices more than long-term option prices.

Nonetheless, it's important to note that trading options always involve risks, and investors should consult with a financial advisor before making any trades.