Do We Drop the Mic(ron)?

While much of the world was focused on geopolitical events, a more sizeable market-related development occurred just over three months ago.  After the close on March 18^th, Micron Technology (MU) reported blowout earnings and stellar guidance.  MU, along with other memory chip stocks, has become one of the keys to the broad market rally over the past several weeks.  That makes tomorrow’s earnings report highly consequential.

From the date of MU’s last release until yesterday’s record high close, the stock was up more than 2.5x, giving it a market capitalization of more than $1.2 trillion.  That made MU the 7^th largest company in the S&P 500 (SPX) and the 3^rd largest component in the modified-cap-weighted Nasdaq 100 (NDX).  Any weakness, or even a failure to clear the sky-high expectations that are already baked into this stock, could shake market sentiment.  We saw Broadcom (AVGO) get punished earlier this month for offering “only” $16 billion in revenue guidance when $17.2 billion was expected.  A huge gain was not huge enough, and the stock plunged. 

Interestingly, something similar happened to MU after its last report.  The stock fell by about 30% in less than two weeks after its blowout earnings, though it of course nearly quadrupled from its March low through yesterday’s high.  The initial drop was the result of lofty expectations combined with global stock market malaise caused by the war in the Persian Gulf.  Today’s selling notwithstanding, the global market malaise is long behind us.  The lofty expectations remain.

MU: 6-Months, Daily Candles, with Vertical Line at March 18^th Earnings Date

Source: Interactive Brokers, past performance is not indicative of future returns.

Today we see some profit-taking in the global chip sector weighing on MU and some of its peers.  South Korea’s KOSPI was down by 10% thanks to plunges in SK Hynix and Samsung, and the Philadelphia Semiconductor Index (SOX) is down by nearly 7%.  Some of that might be reflecting nervousness ahead of MU’s earnings, but it might simply be a matter of the tendency for parabolic moves to be unstable and unpredictable.  It could easily be a combination of both.  Let’s see how options traders might be viewing the risk/reward calculus ahead of tomorrow afternoon’s report.

The IBKR Probability Lab shows some modest risk aversion reflected in options expiring on Friday.  We see a peak probability around the 1040 level, about 4% below the current market price.

IBKR Probability Lab for MU Options Expiring June 26, 2026

Source: Interactive Brokers, past performance is not indicative of future returns.

Traders in NDX options that expire on Thursday are not particularly biased, though.  The peak probability is at the current index level.

IBKR Probability Lab for NDX Options Expiring June 25, 2026

Source: Interactive Brokers, past performance is not indicative of future returns.

Skews for near-term options show a considerable amount of risk aversion.  At-money options are pricing in roughly 11% daily moves between now and Friday, which is well above the 6-quarter average of 7% (-3.78%, 10.21%, -2.82%, -0.98%, -8.04%, -16.18%).  Then again, MU is down 11% today.  Skews are steep, with highly asymmetrical downside.  Remember that we have seen relatively flat or even upside skews on several tech-related options ahead of their earnings reports.  Perhaps this reflects the fact that MU has fallen after 5 of its past 6 reports.

Skews for MU Options Expiring June 26 (green), July 2 (dark blue), July 10, 2026 (light blue)

Source: Interactive Brokers, past performance is not indicative of future returns.