MU is worrying due to massive price rise and potential supply-driven margin compression.

Micron is preparing to announce its quarterly results after the close of trading today. Here are the current projections: Wall Street is expecting adjusted earnings of $3,155 per share, which is up from the previous quarter and significantly higher than the same period last year.

A year ago , that figure was only $303 per share.

This year, Micron has received a significant boost thanks to its ability to set prices. As for its revenues, they are expected to exceed $50.8 billion, which is also much higher than last year.

Micron's stock has seen a remarkable rise, with its value increasing by more than 540% year-on-year.

Okay, now it's time to discuss Micron's performance. So, before we move on to your example, we would like to hear your views on Micron. Daniel, Tom, I read a lot about Micron this morning.

To be honest, it's a bit worrying , because firstly, I look at the graph. In one year, the stock price rose by 541%.

Some of the articles and notes I read mentioned the word " slowdown," which means a slowdown in prices. Remember that this stock is traded as a commodity, meaning it moves from a state of limited supply to a state of excess supply, and it trades accordingly, right?

He had been suffering from long-standing restrictions in the show. Now, there are reports that China is increasing its supply, and that the supply is no longer as scarce as it once was.

This negatively affects prices and profit margins , and some analysts believe this has been largely ignored.

The numbers will remain good, but if they indicate any kind of slowdown, whether in spot market prices or contract prices, that would be worrying. If they mention that word in any way , this stock may be negatively affected because it is traded as a commodity, moving from a state of limited supply to a state of equilibrium or surplus, and the stock may encounter a problem.

I don't know if it will happen, but the articles I've read talk about the possibility of it happening or predict it will happen. Therefore, guidance may be important. But I became more skeptical than I had been after reading some notes about Micron.

I'm not sure if they will achieve significant growth. The question is: how much growth will they achieve? Will it achieve impressive numbers?

You know that, but what is the actual price of this stock, Diana Tom? Good question. Tom, what do you think of Micron? Well, Kevin raised some good points because expectations are very high ahead of this report, due to the significant rise we've seen in the stock price over the past twelve months.

I think one of the key points is valuation based on the price-to-earnings ratio . The figure remains in the single digits because the earnings-to-earnings ratio in the price-to-earnings (PE) ratio continues to expand.

You mentioned that they expect revenues of approximately $51 billion. This represents a huge leap, 350% from last year's levels . As for earnings per share, they are expected to grow by 940% compared to last year's levels.

So, if we look at it from this perspective, and from the perspective of valuation, this is why this meteoric rise in the market continues for many investors , and why price targets of up to $1,500 per share are being seen.

Because people look at it from the perspective of making expectations, and Kevin made an important point. I think expectations will be extremely important to them. But remember, this technology sector has historical boom-and-bust cycles, and perhaps that's no longer the case because demand is outpacing supply, and they are offering better forecasts for the future, not just for the next six months or year.

They are now offering two- or three-year forecasts, saying: "The supply will run out by 2026, and will remain so for most of 2027."

All the giant cloud computing companies are scrambling to buy up anything available, because they know that prices will continue to rise. Prices for Dynamic Random Access Memory (DRAM) and NAND memory are constantly rising.

There are not enough high-bandwidth memory chips , which Micron is focusing on heavily because they are higher-margin chips. And their prices continue to rise.

So, everything is going well for this company, but expectations are very high, but if we look at its valuation, we will find it relatively cheap compared to historical values.

Excellent points too. Well, you can guess what my deal looks like on paper, which is a sort of bearish strategy . So, I looked at the expected movement, didn't I ? It's about $76 for the rest of the week.

It's about $80. So, I looked at something that would make my work a proper number. I looked at the calendar of one-week put options at $1000 in Micron. Buying a put option on October 9th and selling a put option on October 2nd, both with an execution price of $1000, not diagonally, but on the calendar where the execution price is equal.

I was looking for a price around $7.50, and the stock is now trading a little higher than that, trading near $790, but you have to do a lot of price research here, Tom, you know.

But Tom, this is a way to trade a $1070 stock for $750, somewhere between $750 and $800. Now , you can create an upward calendar. You can use the bearish calendar strategy, Tom, but small and medium-sized accounts are still able to trade Micron shares using these strategies.

Good. Let's analyze this strategy. It's a short-term strategy, Kevin, using a put options calendar. Switch to the weekly October 9 options that expire in 9 days. He bought a put option worth $1000.

He then sold the same $1,000 put option into short-term weekly October 2 options that expire on Friday, just two days later. In short, it is a bearish calendar strategy for one-week put options.

You pay approximately $750 in fees. These fees represent the value of the risk. It might be slightly higher than that. So, remember this: $750 for a one-week calendar put options strategy.

As you know, it's very expensive, but at the same time, if you look at what you're selling here , the weekly October 2 option that Kevin is selling , which is currently priced at $74 out of the profit range, is still worth $10.

Therefore, there is a significant external option premium. The one-day move priced by the options market is approximately $76 plus or minus in either direction for this stock.

This is consistent with the execution price set by Kevin. It uses the calculations that the options market is pricing at this point. Now, you can see here from the risk profile, where does this deal generate the most profit?

At or near the strike price of 1000, you calculate the calendar for put options, right? But you probably still have a $60 range on either side of 1000 from which you can potentially make a profit on this trade.

Perhaps $940 in case of a drop, and perhaps $1060 in case of an increase. So, you still have a price range even with your target execution price of 1000 over the next two days.

Then you will see a decrease in the implied volatility in near-term options , which will raise the price of this contract. You are now paying 750. You are selling approximately 122% of the implied volatility in the weekly put option on October 2, where you are selling the put option at 1000.

In the options on October 9, where you are buying, you are buying approximately 76% of the implied volatility. Therefore , this volatility variation lowers the entry point price , but it remains an expensive short contract on a weekly basis.

However, it gives you a limited price range. What you don't want to happen is for the stock price to stay at this level or rise. You don't want the stock price to collapse and fall below 9.40 or 9.30.

Then you will start losing profitability. But you know exactly how much of a risk there is, which is $750. This is the amount you pay for each transaction. Therefore, you are giving yourself some risk by using a put options calendar, and you are taking advantage of the volatility variation between the buy and put options series.

Kevin, you've taken a more passive approach to this deal. It is neutral to bullish, but I used an unbalanced butterfly selling strategy to the downside, where I buy the stock and get a return on it.

And I will win in three out of four scenarios. Let's analyze this deal. Weekly options dated October 2nd that expire in just two days , this is a short-term strategy. I buy one put option outside the profit range at an execution price of 1040.

I sell two put options at an execution price of 1030, then I buy one put option at an execution price of 990. You will get a profit of approximately $7.10. This is the current trading price.

Kevin is right; the price discovery mechanism is essential. The bid and ask price differences for these individual options are very wide. So, you might be able to collect $750, maybe even $8.

Keep this in mind. However, if you accumulate a profit of $7.10, your risk will be $2290. But this is much less than the execution price of 990. And as you can see here in the risk profile, if I collect a profit of $710, where do I keep that profit of $700 for each price difference?

If the price is higher than the execution price of 1040, you will only keep the profit you have collected . But as you can see here from the risk profile, I get a small profit margin at or near the short strike price where I sold two options at a strike price of 1030.

Now, Kevin, the breakeven point for this trade is $1012.90. Therefore, I have a margin of safety. It is still within the range of standard deviation. This allows me to make an additional profit from this type of position in the unbalanced butterfly strategy .

Yes, this is an upward butterfly strategy. However, you are exposed to some risk at the execution price of 1030. You are in a buy position on the 1040 and 1030 options, with an offer of $10.

But you are in a selling position on my options 1030 and 990, with an offer of $40. This is where the risk lies. This is a vertical sale on my 1030 and 990 options. This is where you get your profit.

If the price stabilizes at this level, or rises, or falls slightly, you will keep this balance, and perhaps even get more if it approaches the strike price of 1030. But, as you know, Tom, the risk is on the downside due to the size of the short position.

So, this is an interesting way to look at it, because it raises the question: What if nothing happens? If nothing happens, Tom's center will be profitable. As for my center, it might need some help if the price drops, Diane.