Bull v. Bear: MU Demand & Earnings Strong, Outlook Risks Remain

to Faster Market here on Schwab Network. Shares of micron rebounding this afternoon after a sharp sell off that's left the stock down roughly 30% from its late June highs. The recent weakness has mirrored a broader pullback across AI linked memory chip makers, as investors lock in profits. After that huge first half rally, analysts say the fundamental story remains intact, with memory prices continuing to rise in AI driven demand still strong, Wall Street still expects micron to deliver strong earnings growth over the next several years, which once upon a time, was not the type of runway you got with memory names. All right, time now for the tug of war on the memory space. For that, let's welcome back in our co-host Tom White and Kevin Haynes. Guys, it is bull versus bear time. So before we get your example trades, we got to get each of your thoughts on micron. So listen, this is like the tug of war happening in real time. We've been watching pressure this week and even pressure on the sector coming into today. You started to see it kind of turn around heading towards this noon hour. But Kevin, I'll start with you. Your take on micron. Yeah. This is a company that is extremely dependent on the AI build out. And there's a lot of reasons why it rallied up to 1255 and came down. Remember it in many ways trades like a commodity, which means there's not enough capacity, which leads to enough capacity, which leads to too much capacity and too much capacity. Much like an airline can really wreak havoc on the price of a stock. So if capacity is coming down the pipeline and we hear a lot of these factories being built and things being built for more capacity, it could get very volatile. Now they're still leading in memory. They're still the gold standard for memory. This stock is still doing extremely well. The company is doing well. But there are risks out there. And that's why the stock has gone from 1255 to under $900. And by the way there's other risks like innovation. If someone comes along with a better thing Google has already put out, I want to get the name right. The Turbo Quant is what they're using, supposedly that you use less memory for your LMS. And so if innovation starts to take over, there's some risk there. There's a lot of reasons to be very cautious and prepared for volatility when it comes to micron stock. You're already seeing it on the way up back on the way down. Is it cheaper or expensive. I have no idea. Diane. Tom what's your take. Yeah. I mean the stock's up 10% off of its intraday lows. We're seeing a nice little rebound after all these memory chip names including micron were down over 30% 40% from their all time highs that we saw just a few weeks ago. A lot of that concern was based on the AI trade right. Tech sell off here a little bit. But then also maybe competition coming in the space. The Chinese memory chip makers might may be a cheaper alternative for companies. We know Apple is lobbying the administration right now. And the Senate a Senate committee actually went to Commerce Secretary Lutnick and basically said, hey, do not allow these memory chips from China to be sold. So they want to maintain that ban that they have on them. But there's questions arising. That's why you've seen the volatility in this space. And throw in the fact that the parabolic move I mean the stock is down 30% from its all time highs. But it's still up 210% so far this year. So maybe it was a combination of profit taking, some concerns over competition coming into the space and the spending from the hyperscalers. But Taiwan semiconductors earnings kind of solidified the narrative that's out there when they when you saw 77% growth on revenue from them, that they are continuing to expand to try to meet that that demand that's out there for their chips. And when those chips sell, you need the memory chip chips also to go in those data centers. But yeah, just a volatile name, high beta name. It's got a beta of two. The S&P 500 has got a beta of one. So it doubles or trades double the percentage basis that the S&P 500 does. And I'm surprised that the beta is actually that low just from the moves that we've seen in here. But just remember this is a really volatile high priced stock. All right let's get into the example trades. Kevin let's start out with yours. What's your approach today. Yeah. You know this stock is all over the board even today. And so despite it being down despite where it traded the seven day expected move is over $100. When it was trading about $850 a short time ago. I looked at just the one week buying the July 24th, selling the July I'm sorry, buying the July 31st, selling the July 24th 950 call calendar. Just a just $100. Now it's about $70. It was trading about $18. Now it's trading about $21. So this spread is moving all over the place in micron. But this is a bullish play. Looking for a move up. Back up towards that 950 strike. Like I said this stock can move. It's already moved incredibly in the last hour and a half. And so it will continue to move. But at least this one you are collecting theta your risk defined to the debit paid. And you're looking for a move gradual. Don't know if you'll get gradual towards that 950 strike time. It's trying to ride a wild tiger. Tom. I'd love to get off. I have no idea how on this name these are big numbers going around out here. Yeah. Let's break this trade down because yeah, the stock has continued to whip around here today. But let's break it down. Going out to the July 31st weekly options 14 days to expiration. Buy that 950 strike call then against it in the near term July 24th options that expire in seven days sell that 950 call. So a one week wide bullish call calendar here. You're paying roughly about an $18.5 debit for it. Trading over 20 bucks right now. The stock has moved. Remember this stock is high priced and it's got really wide bid ask spreads on the individual options. So price discovery warranted on these type of positions and these type of strategies. So keep that in mind when looking at names like this. But you can see here from the risk profile from Kevin's example trade. You want the stock to go back up towards 950. Right. That's where you're going to get the max level of profitability. But you've probably got a range between about 860 on the downside and 1060 on the upside to be potentially profitable on a trade like this. So keep that in mind. And one item of note, the July 24th weekly options that you're selling, the 950 strike call there that that is currently basically about $70 out of the money to the upside. That's, that's an option that's still worth $24 of extrinsic option premium. So that should tell you right there that if the stock stays here, that's $24 that have to come out of those options over the next week if the stock remains below 950. So that will give you an idea why a one week wide calendar spread that Kevin brought us is so expensive, right? Because the the potential profitability is really elevated on this also. But you do need to move to the upside just ever so slightly on this one. What you don't want to happen is the stock to fall or the stock to go up back towards maybe 1050, $1,100, something along those lines. So there's your bullish look there at micron from Kev. Kev I went a little bit more passive. I used that same 950 strike. I went out to the July 31st weekly options. If you think the stock's done going up and maybe it's going to be consolidating or going lower again, I got a short neutral to bearish call vertical to look at here July 31st. Weekly options that expire in two weeks. Sell that 950 call and then want to stay risk to find in a 9 or $880 stock. Buy the 970 call. So a short $20 wide neutral to bearish call vertical. You're collecting roughly. I looked at it earlier. It was trading 550. Now it's probably trading a little bit higher than that. 650 right now. So you collect more option premium and that would reduce your risk. But if you collect a 550 credit, that's what you can make. $550 per spread takes your break even on that one up to 955 50 to the upside. So you've got a big cushion to the upside up there, but you've got about $1,450 in risk on this one. And that's above the 970 level. So Kevin, looking at a little bit more passive with a higher probability of success on this neutral to bearish short call vertical. Both spreads collecting theta both spreads targeting that 950 strike which is basically where it was before the stock just rallied. So line up that right column in the thinkorswim platform with your expected move. And then control the risk. Yep. I think that's one of the key things is in a high priced stock like that price discovery is warranted. And then also remember to stay risk defined on these trades. Know exactly what your downside is before going into them. Because these things can move relatively quickly. Quickly. Diane. Thanks guys. Shares of