This Nvidia derivative play is on fire ahead of earnings next week. How to trade it from here

Published Fri, Mar 15 202410:41 AM EDTUpdated Fri, Mar 15 202411:08 AM EDT

Investors looking for artificial intelligence exposure outside of Nvidia directly were rewarded in Micron (MU) , up 70% in one year. I'll discuss a smart options trade from here following Micron's stock run and ahead of its earnings next week. Micron is one of the largest semiconductor companies in the world, specializing in high-bandwidth memory and storage chips, yet it is a fraction of the size of Nvidia at only $100 billion in market value to Nvidia's $2.2 trillion. Micron makes chips for Nvidia's GPUs. I believe that Micron can ride the AI wave higher despite the challenging fact for any investor that they did not generate a profit in 2023. Consensus revenue forecasts of $5.30 billion (per FactSet) are encouraging, marking a 12% quarter-over-quarter increase. Expectations for Micron's high margin chips to coattail Nvidia's AI systems was the basis for Citi Research's optimistic note just released, lifting their price target form $95 to $150 as we head into MU earnings next Wednesday. The shares have been on fire ahead of the results, up 15% in the past month. As I believe there will be a lot of volatility in the months ahead inside of the high-flying artificial intelligence theme, I want to clearly define my risk in this bullish view I am expressing below. Technically, the stock is not in overbought territory despite having a great one-year run per below. The Trade: Buying a Call Spread Buying the $105 May regular expiration call for $3.10 Selling the $125 May regular expiration call for $0.90 This call spread was executed when MU was trading $92.50 as a debit spread that will cost an investor $2.20 per one spread (costing $220 per one call spread). Although this would be a new all-time high for Micron, the narrative of "high tide, lifts all boats" has been applicable to anything and everything associated with artificial intelligence. DISCLOSURES: (Kilburg is long this call spread) THE ABOVE CONTENT IS SUBJECT TO OUR TERMS AND CONDITIONS AND PRIVACY POLICY . THIS CONTENT IS PROVIDED FOR INFORMATIONAL PURPOSES ONLY AND DOES NOT CONSITUTE FINANCIAL, INVESTMENT, TAX OR LEGAL ADVICE OR A RECOMMENDATION TO BUY ANY SECURITY OR OTHER FINANCIAL ASSET. THE CONTENT IS GENERAL IN NATURE AND DOES NOT REFLECT ANY INDIVIDUAL'S UNIQUE PERSONAL CIRCUMSTANCES. THE ABOVE CONTENT MIGHT NOT BE SUITABLE FOR YOUR PARTICULAR CIRCUMSTANCES. BEFORE MAKING ANY FINANCIAL DECISIONS, YOU SHOULD STRONGLY CONSIDER SEEKING ADVICE FROM YOUR OWN FINANCIAL OR INVESTMENT ADVISOR. Click here for the full disclaimer.