Micron Earnings Highlighted as the Next Catalyst for the Semiconductor Sector by Susquehanna

On Monday, options strategist Christopher Jacobson from Susquehanna International Group emphasized that Micron Technology, Inc. (NASDAQ:MU)'s upcoming earnings report represents a significant potential catalyst for the semiconductor sector. Options for MU predict a low double-digit move for the week, which is higher than the average +/- 8.0% move observed over the last eight quarters. However, recent trends align with this expectation, as the last three reports showed increased volatility with moves of +/- 10% or more.

SFG Technology Hardware analyst Mehdi Hosseini maintains a Positive rating on MU shares with a price target of $165. Despite near-term softness in average selling prices for DRAM/NAND, Hosseini expects that MU's increasing market share in HBM and DDR5 will elevate earnings potential in the $10-$15 range. He also notes that the downside risk from competition is minimal, stating that it will take at least a year for Samsung to correct its DRAM and NAND technologies. The risk/reward profile of the stock is deemed attractive, and guidance for the February quarter is expected to come in below consensus.

While awaiting the earnings report, Susquehanna reviewed its strategy of holding options on Western Digital Corporation (NASDAQ:WDC) to potentially capitalize on sympathetic market movements. This approach has been less consistent lately, but results from the last quarter indicated that MU's stock rose by 14.7% and WDC's moved up by 6.8% in sympathy.

Analysis of the last eight MU earnings reports shows that owning MU earnings volatility has been largely fair; the straddle averaged 1.5% higher, with four instances of increases and four decreases. In contrast, the WDC straddle increased in five of the corresponding eight MU reports and provided an average gain of 22.0%. Although the WDC straddle was higher compared to previous MU reports, there is still potential for decline, and MU's straddle remains high as well.

For those expecting significant movements in the semiconductor sector, the SMH weekly straddle closed on Friday with a movement of approximately 3.3%. In the last eight MU reports, SMH experienced an average realized movement of +/- ~2.2%.