Earnings Volatility | Micron Post-Earnings Moves Turbocharged by Frenzy Over AI

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 the week:

-Earnings Date: 3/20 After Market Close

-Implied Move: 11.2%

-Absolute Average Actual Move for the past 4 Quarters: 6.1%

-Absolute Average Actual Move for the past 12 Quarters: 4.8%

-Earnings Normalized Estimate: USD $-0.448

-Revenue Estimate: USD 5.332 billion

According to recent data from Market Chameleon, options for MU are overvalued with the implied move of 11.2% significantly higher than the average actual move for the past 4 quarters (6.1%) and its average actual move for the past 12 quarters (4.8%). The options market overestimated MU stocks earnings move 67% of the time in the last 12 quarters. The predicted move after earnings announcement was ±6.3% on average vs an average of the actual earnings moves of 4.8% (in absolute terms).

The Micron Technology stock options market shows a call option wall at $100 and put option wall at $65 a head of its earnings release, reflecting concentrated trading interest.

Traders are pricing in big swings ahead for AI-related firms after an already dizzying stretch.

"One crucial factor to watch for Micron is their progress in developing HBM3e, a type of high-bandwidth memory superior to what their competitors offer in terms of performance and efficiency," according to Rosenblatt Securities analyst Hans Mosesmann, "this could help Micron claim a significant portion of the market share."

Investors are poised to closely follow Micron Technology's financial results, as the semiconductor leader gears up to unveil its latest earnings on March 20, 2024. Forecasts suggest that Micron is expected to announce an earnings per share (EPS) figure of -$0.27, reflecting a robust year-over-year growth of 85.86%. Furthermore, consensus estimates from Zacks Investment Research indicate that the company's revenue is anticipated to reach $5.33 billion for the quarter, marking a significant 44.35% increase from the same quarter in the previous year. Barclays has revised its price target for Micron Technology, elevating it from $95 to $120, while maintaining an Overweight rating on the stock last week.

Looking at the broader fiscal year, Zacks' aggregated analyst predictions point to an EPS of -$0.32 and total sales amounting to $22.67 billion. These figures illustrate a noteworthy positive earnings shift of 92.81% and a revenue uptick of 45.87% when juxtaposed against the last year's numbers.

In addition, the debate on Wall Street is intensifying over the potential of an artificial intelligence-induced speculative bubble. Opinions are split, with some market observers dismissing the idea, while others voice concerns that such a bubble may be forming.

Amidst this discussion on the true impact of AI on market valuations, analysts at Citi maintain a more optimistic outlook. They suggest that, regardless of the ongoing debate, certain technology stocks might still possess the potential for further growth in their valuations. This perspective implies that, in Citi's view, the current enthusiasm around AI has not yet fully played out in the market prices of some tech companies.

"We would note that these bubbles can last a year or longer, similar to what happened in 1999 with the tech bubble," Citi analyst Christopher Danely wrote in an investor note, adding the bubble could last into 2025 as long as estimates keep rising.

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.