Long Put Spread (MU)    Comments?

Closed: Profit $71.40

Market Close July 3

SymbolPositionPriceCloseP&L
MU Long Put Spread        
MU Jul02 22.50 Put -1 0.222 3.43 -320.8
MU Jul02 23.50 Put 1 0.508 4.43 392.2
Total   0.286 1 71.4

17th June, 2015

Micron Technology (MU) showing some high vols with a decent downtrend. Stock has been pretty choppy but the overall trend for the past year is negative. The shares have just slightly bounced off recent lows, so I probably should have waited a little longer to establish this position but the payoff profile looked pretty good as it was.

Breakeven on the downside is $23.46, which based on the current stock price of $24.22 and 37% vol gives only a 28.13% chance of trading below that. But the payoff if below is $73 compared to a max loss of $27 if the stock stays above that by expiration.

The vol skew paints suggests that the market expects the stock to rally as the call prices increase;

And here is the historical vs implied vol graph;

I placed my order to buy the $22.50 and $23.50 put spread for a debit of $27 and was filled on that order;

Update 3rd July

MU closed the week out at $19.07. The put spread expired at its' max value, less the premium paid leaves a profit of $71.40. Here's the chart after the close on Friday;

 

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