Options Traders' High Expectations Blown Away by Micron's Earnings Move

Ahead of Micron Technology’s (MU) earnings announcement, options traders were preparing for a significant price move. With implied volatility suggesting a 9.5% jump, traders braced for one of the largest earnings-driven shifts of the year. However, even these high expectations were shattered as the move exceeded 16%, surprising traders and scrambling to adjust their positions.

Expectations vs. Reality

Options traders were already expecting Micron’s earnings to trigger a larger-than-usual shift in stock price. The implied move of 9.5% dwarfed the historical 12-quarter average of 5.7%, and the average implied move from options prices of 7.1%.

But when the earnings hit, Micron’s stock soared by over 16%, blowing past even the heightened expectations set by the options market. This massive move left many traders scrambling, especially those positioned based on the 9.5% expectation.

Traders Positioned for Upside

In the day before the earnings report, trading activity leaned heavily toward long deltas, meaning traders were betting on an upward move in the stock price. They also paid higher premiums, expecting a significant upside after Micron’s earnings.

One of the largest trades made was a December out-of-the-money call option with a strike price of $120. This trade was executed at $2.95 per contract, with a total trade value of $3.2 million. The bet paid off massively: with Micron’s stock soaring, the value of those calls shot up to $7.40, resulting in a nearly $5 million profit.

An Echo from March 2024

Interestingly, this isn’t the first time Micron has blown past expectations. In March 2024, traders expected a 9.9% move following earnings, only to see the stock climb by 14.1%. Like today’s earnings surprise, Micron delivered more than expected, continuing a pattern of unpredictable earnings-driven price action.

Key Takeaways for Options Traders

Micron’s latest earnings performance serves as a potent reminder for options traders: even elevated implied volatility doesn’t always capture the true potential of an earnings-driven move. Here’s what traders can learn from this:

• Implied Volatility Isn’t Always Accurate: The implied move of 9.5% was already high, yet Micron’s actual move was much larger, showing that even significant implied volatility may underestimate the true risk.

• Long OTM Deltas Paid Off: Traders who were long cheap out of the money call deltas expecting the stock to rise were rewarded handsomely, particularly those who bought call options ahead of the earnings report.

• Leverage Can Lead to Massive Gains (and Losses): The $3.2 million call position that turned into a nearly $5 million profit is a prime example of how options traders can make substantial gains in volatile situations—but also how quickly the tide can turn for those on the wrong side of the move.

Conclusion

Micron’s September earnings blew past already elevated market expectations, delivering a 16% move that exceeded the predicted 9.5%. For traders who were prepared for the upside, the rewards were enormous, but the surprise outcome served as a reminder of the unpredictable nature of earnings season and the risks that come with it.