Investors may have just seen the canary in the semiconductor coal mine fly. Micron (MU) may not have had the incredible performance of Nvidia, but it’s been a great stock, doubling last year and rising more than 50% in 2024. The AI boom has soared higher as memory chips have become a more important component of artificial intelligence accelerators. However, with the now unrealistic standards set for AI earnings reports, Micron fell more than 7% in heavy trading. I would like to express a near-term bearish view on Micron because I believe additional profit taking will occur in the third quarter. Micron is one of the world’s largest semiconductor companies specializing in high-bandwidth memory and storage chips. But it’s only a fraction of the $3 trillion Nvidia, which has a market capitalization of nearly $150 billion. Shares of Micron fell Thursday afternoon despite multiple price target increases from various brokerage firms. JPMorgan is one of many companies bullish on Micron, listing the company as one of its top picks in the semiconductor space. Micron’s stock price plunged because the semiconductor giant revealed plans to increase capital expenditures (CapEx) in the next fiscal year as it prepares for a significant increase in sales. In fiscal 2024, Micron spent $8 billion on CapEx. According to Micron’s guidance, CapEx in 2025 will be approximately $13 billion, an increase of 62.5%. I think this was the catalyst for profit taking. Trade I rely on technical factors to guide this trade structure as I believe volatility will increase in the coming months in the semiconductor space as rebalancing and profit taking are inevitable. Buy a put spread Buy a $132 put expiring on July 26th at $5.25 Sell a $120 put expiring on July 26th at $1.35 This put spread gives investors $3.90 per spread when MU is trading at about $133.75. It was run at a costing debit spread. If this earnings report is just a blip in this incredible bull market where AI and Micron continue to rise, it defines the losses that can be incurred on this trade. If I’m right about the take profit on semiconductors, this trade will go down to a maximum profit of $8.10 per spread (this maximum profit is simply the cost of the put spread minus the $12 difference in the strike price of the put). Disclosure: (Indirect MU through long put spreads and SOXX chip ETF ownership) All opinions expressed by CNBC Pro contributors are solely their own and do not reflect the opinions of CNBC, NBC UNIVERSAL, its parent companies or affiliates and have not previously been broadcast on television, radio or the Internet. Or it may have been distributed through other media. The above content is subject to our Terms of Use and Privacy Policy. This content is provided for informational purposes only and does not constitute financial, investment, tax, or legal advice, or a recommendation to buy any security or other financial asset. The Content is general in nature and does not reflect any individual’s unique personal circumstances. The above may not be appropriate for your specific situation. You should strongly consider seeking advice from your financial or investment advisor before making any financial decisions. For our full disclaimer, click here.
Winning option trading when chip trading cools down after a surge in the second half
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