Traders betting big on three tech stocks, including Micron, ahead of earnings next week

  • Heavy options activity in Micron calls, according to trader Jon Najarian.
  • Options traders are also betting that Red Hat and Paychex move higher after earnings.
  • Najarian scored winning trades on Wells Fargo and AT&T in the past week.

Traders are making bullish bets using options on Mircon, Red Hat and Paychex ahead of earnings next week.

Chipmaker Micron reports earnings on Tuesday after the bell.

In the past week investors have bought more than 11,000 calls with a December 48 strike price in Micron, according to Jon Najarian, Najarian Family Office co-founder and "Halftime Report" contributor. These calls expire next Friday, so it's a relatively short-term bet. Micron closed at $42.24 on Thursday, so the stock would have to pop nearly 14 percent to hit $48 by next Friday.

MICRON TECH-M&A/TSINGHUAUNIGROUP
Kai Pfaffenbach | Reuters

Traders can use call options to capitalize on a stock's move higher while simultaneously limiting their downside risk.

If Micron doesn't hit $48 by next Friday the traders will only lose the price they paid for the call option - typically a fraction of what it would cost to buy the stock - plus the commission fee. On the flip side, should Micron blow past $48, the call-option gives traders the right to buy the stock at $48 instead of the higher level.

Najarian spotted other interesting options activity in software company Red Hat, which also reports earnings on Tuesday after the bell.

This month traders bought more than four thousand January 130 calls that expire on January 19. As of Thursday's close Red Hat was trading at $126.13, so to hit $130 it would have to rise 3 percent. Shares of the Raleigh, North Carolina-based company are up more than 80 percent this year.

Traders are also predicting that Paychex moves higher after reporting positive earnings.

This month traders have bought nearly 27,000 calls at the January 70 strike price, according to Najarian. The payroll-processing company reports earnings on Thursday before the bell, and according to FactSet estimates, analysts are expecting earnings per share of 59 cents on $823.5 million in revenue. These calls, which expire January 18, were trading at $0.57 at the start of the month. As of Thursday's close, they were at $1.38.

Elsewhere in the market, Najarian and his brother Pete Najarian, Investitute co-founder, have seen heavy options activity in AT&T and Wells Fargo.

Last Tuesday bulls piled into Wells Fargo calls at the February 60 strike price. As of Thursday's close the stock was up more than 3 percent since Pete Najarian highlighted the options moves on the "Halftime Report."

AT&T is another recent trade that has worked for Najarian. Last Wednesday he bought April 37 calls, and the stock has moved more than 3 percent higher since.