#MU Bull Call Spread
Micron just posted a blowout earnings report. Demand for memory is so strong the company says it can’t keep up, and it expects that to last into 2028. The stock went down anyway. If you believe in AI, Brian argues, you should own something in semiconductors, whether that’s Micron or an ETF like SMH or SOXX. The problem is price. Micron trades near $1,080, so 100 shares costs about $108,000. In episode 25 of Fundamental Fridays, Brian shows how options can get you exposure to an expensive stock without putting up that much capital and without paying for time value. He starts with a refresher on the collar, using the SpaceX shares in his paper account. With SpaceX near $157, he buys the 28-day 155 put (about $6.30) and sells the 162.50 call (about $6). The whole hedge costs roughly 35–38 cents, or about $35 per 100 shares. That limits both the downside and the upside for the next month. Brian keeps protective hedges short-dated on purpose. If you’re nervous enough to want six months of protection, he says, you should probably just sell the stock. Next comes the key idea. A long call spread has the same profit-and-loss shape as a collar. You get the same bracketed outcome without owning the shares. For Micron, Brian goes out 140 days to the February 19 expiration, past the elections. He buys the 1,060 call (20 points in the money) and sells the 1,100 call (20 points out of the money), for a net debit of about $18.80. That’s roughly 1.7% of the stock price. Why strikes the same distance from the stock? The time value in an in-the-money option roughly matches the time value in an out-of-the-money option the same distance away. Choosing strikes that way means the time value you pay and the time value you collect cancel out, so the trade depends only on the stock price. Here the breakeven (1,060 + 18.82 = $1,078.82) is slightly below the stock price. The tradeoff: if Micron jumps quickly, gains build slowly until the short call loses its time value. Brian also compares the spread with a deep in-the-money call around 80 delta, which costs about 20% of the stock price and still carries some time value, and with buying calls outright and rolling them back to an 80-delta strike as delta approaches 1. His advice on sizing is clear: buy a couple of spreads for exposure, not as many as $100,000 would buy. He finishes by placing the official paper trade: buy to open the February 19 1,060 call and sell to open the 1,100 call, for a $19 net debit ($1,900 per one-by-one spread). Key takeaways: – A long call spread produces the same P&L shape as a collar, without buying the shares. – Strikes the same distance in and out of the money keep the time value roughly neutral. – On high-priced stocks, a spread gives you exposure for a small fraction of the stock’s price. – Keep collars and protective puts short-dated; size spreads for exposure, not leverage. Options involve risk. This episode is educational and not a recommendation. |
