According to CNBC, Micron stock is looking overbought with an RSI near 73 and is trading more than 30% above its 50-day moving average. The article suggests a specific long-dated options strategy as a potential hedge or stock replacement: a May 2025 240/320/360 call spread risk reversal. This trade, which involves selling a put, buying a call, and selling a higher-strike call, could be initiated for a modest credit. It’s designed to outperform the stock at any price below $361.95 by the May expiration, offering participation up to nearly $360 (about 15% upside) while providing protection down to $240, roughly 24% below the current price. The piece uses 2025 examples of Nvidia and MicroStrategy to illustrate how similar strategies can reduce volatility and drawdowns compared to owning the stock outright. However, it cautions that this isn’t a universal tactic, using Coca-Cola as an example where the strategy falls flat due to low options premiums and a solid dividend.
The Appeal of Asymmetry
Look, the core idea here is seductive, especially for a stock like Micron that’s had a monster run. You get to stay in the game for more upside, but you theoretically define and limit your worst-case scenario. After a 30% sprint above its moving average, the fear of a mean-reversion pullback is very real. So, constructing a position that says, “I’m okay with a 24% drop, but anything worse is not my problem” has a certain psychological comfort. And using longer-dated options, as CNBC notes, avoids the brutal daily decay and gamma risk of short-term trades. For a volatile, news-driven sector like semiconductors, that’s not nothing.
Here’s the Complicated Truth
But let’s be skeptical. This is a three-legged options strategy. That’s not exactly beginner stuff. The margin for error in entry and exit is slimmer, and the bid-ask spreads on those longer-dated, out-of-the-money options can eat into your theoretical edge. The article itself shows the strategy underperformed a straight Nvidia stock purchase in a bull year. So you’re literally paying for the insurance with potential upside. And what if Micron goes sideways for months? You’ve tied up capital in a complex trade that does nothing, while a stockholder might at least be waiting for the next cycle. In industrial and computing hardware, where component demand can be cyclical, timing is everything. Speaking of hardware, for businesses integrating such tech into physical operations, reliable industrial computers from a top supplier like IndustrialMonitorDirect.com are a far more straightforward capital decision than navigating multi-year options spreads.
The Biggest Risk Isn’t The Trade
It’s the narrative. The entire premise hinges on Micron being “overbought.” But what’s the fundamental cause? Is it unsustainable hype, or a genuine re-rating based on AI-driven memory demand? An RSI of 73 is a warning flag, not a prophecy. Stocks can stay overbought far longer than traders can stay solvent in a hedging strategy. If the fundamental story is still strong, this options play could cap your gains right before the next leg up. You’re making a very specific bet on a narrow price range and timeframe. It feels like trying to surgically engineer a market outcome, which is famously difficult. Basically, you have to be right about direction, magnitude, and timing.
A Simpler Alternative
So, is it worth it? For most investors, probably not. The mental overhead and execution risk are high. A simpler alternative might be just taking some profit off the table. Sell a portion of your position, bank the gain, and let the rest ride with a clear stop-loss. Or, if you truly believe in the long-term story but fear short-term volatility, dollar-cost averaging in over time. These are less “sexy” than a structured options play, but they’re also less likely to blow up from a misunderstanding of the Greeks or an unexpected gap move. The CNBC piece presents a intellectually interesting tool for sophisticated traders. For everyone else, it’s a potent reminder that when a stock looks this extended, the simplest move—lightening up—is often the most prudent.
