The Philadelphia Semiconductor Index gave up 2.7% on Thursday, while Micron Technology (MU) tumbled by nearly 10%. What gives, and how should you play Micron here?
Well, Micron reports fiscal-fourth-quarter results on Sept. 20, and word is that industry expectations are still for 20% growth in shipments for the year. I'm long Micron, and I even added shares over the past two days using the proceeds from liquidating my stake in Action Alerts PLUS holding Alphabet (GOOGL) .
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I still have some dry powder here, but I'm not at all sure how much more risk I want to pile into Micron. Click below to view Micron's chart and you'll see why:
The chart above shows that Micron's direction has changed dramatically this week. The stock's daily Moving Average Convergence/Divergence oscillator (MACD), Relative Strength Index (RSI) and Chaikin Money Flow (CMF) have all gone south.
I currently own about 80% of my intended long position here, but I did add half of that this week, so I'm not feeling any pain yet. Micron closed at $44.65 Thursday, and my next spot to buy is $41. That's where I intend to add the last one-fifth to my intended size for this name. My own tolerance for the stock ends there.
My plan for Friday is to sell puts and calls in the name, as follows:
- Sell Sept. 21 $41 puts, which closed Thursday at $0.98.
- Sell Sept. 21 $50 calls, which ended Thursday at $0.68.
Making both of these sales will reduce my net basis for Micron by $1.66 a share. That's not too shabby.
Yes, I might end up having to "eat" some MU stock at $41, but I'll have already reduced that net purchase price by more than 4% via the $1.66 that I'll have gotten from the above transactions.
And yes, I might have to "take profits" on MU at $50 with the call option, but wouldn't that be nice?
(A longer version of this column ran at 7:36 a.m. ET on Real Money, our premium site for active traders. Click here to get great columns like this from Stephen "Sarge" Guilfoyle, Jim Cramer and other experts even earlier in the trading day.)