Micron Technology (MU) is scheduled to announce earnings tomorrow. I am recommending we roll our call out two weeks and to a lower strike price to generate more income.
The income we generate will help to offset the cost of purchasing a protective put to hedge against a post-earnings sell-off. If the stock drops sharply following the announcement, the put could explode in value, thus allowing us to reduce our cost basis on the position. However, the hope is that the Street will respond positively to Micron’s report and our hedge will expire worthless.
Current Stock Price: $50.47
Current Cost Basis: $64.83/$68.28
- Buy to close the MU Sep Week Five (9/30) 57.50 Call for around $0.11
- Sell to open the MU Oct Week Two (10/14) 55 Call for around $0.94
- Set initial credit limit at $0.83, but adjust as needed to roll today
- Buy to open the MU Oct Week One (10/7) 50 Put for around $2.04, but adjust as needed to buy a put today
New Cost Basis: $66.04/$69.49