Hey guys! I'm here with some ol' fashion DD instead of just market scan stuff! (That's next). I have been watching $MU for some time so I figured I would chat about it as it has some interesting findings.
$MU has recently experienced quite an increase in price while in the setting of a price depreciation that started in April of this year. Here's the VoEx for $MU:
The first thing that is striking is, well, all of it. But mainly VoEx-trend was deeply inside of the propagation zone until recently and during this time MU was seeing a steady decline in price.
It is always interesting to catch these stocks that have sudden reversal of trends to see how VoEx is behaving. Sometimes, VoEx will “allow” the behavior to continue, in a sense, and may even adjust to a price-reversal.
Here, however, VoEx reacted quite violently to the reversal in price-action indicating that there is, in fat, no stability on price appreciation.
With this in mind, let's investigate further and see what we can find and how it might prepare us for the future.
The first thing I did was look at the options layouts. I noticed some interesting trends. Prior to the run up, the stock was filled with dealer short calls and massive dealer long puts giving the stock a healthy gamma squeeze with a delta of -559,907. This is during the price-decline's “leveling off period” around 2021-10-27.
At or around 2021-11-05 with the now steadily increasing price, $MU left the gamma squeeze as a surge of dealer long calls were placed with over 25,000 dealer long calls placed from 2021-11-03 to 2021-11-05. The major strike seems to be the $75 price point, which at the time seemed reasonable with a price of $72.92.
Around 2021-11-10 the price started to slowly creep back up towards $75, bringing the 127,000 puts at $70 back out of the money. At this point in time, VoEx had already reacted strongly to the price appreciation, and on the 10th saw a healthy VoEx decline as the price declined, a strong indicator that stability was located on the down-side (below). Here we see how VoEx reacts given the slightest peek back towards stability (everything is a dynamic system). VoEx springs back towards stability at the slightest indication that that's where the price is going - almost like a tuning fork.
So VoEx is telling us that stability is located south, so let's have a look at why VoEx mighty be telling us that.
It is worthwhile to take a close look at the options, delta, and the options layout. Keeping in mind that VoEx is indicating extreme instability at this point.
Below is a table of $MU's closing price, number of calls (and change from day prior), number of puts (and change from day prior), and finally the net delta (and change from day prior).
Quite drastic changes throughout! Large quantities of calls and, recently, puts being added resulting in drastic changes in delta.
Since the majority of new options placed from 2021-11-09 to 2021-11-16, and (coincidentally) the price being relatively the same, yet delta has changed by 200,000 this tells us that the incoming calls are mostly dealer long.
Why? Looking at the numbers the quick-way:
If the calls weren't dealer long then they must be dealer short which would mean there is a lot of long delta missing since only 40,000 puts were added. With 34,000 calls added and 30,000 puts, if we assume they are all dealer long this gives us +64,000 delta which is still short of the change in delta (+200,000). If these options were dealer short delta then it would be mathematically impossible to achieve these delta values, they must predominately be dealer long.
The remaining delta (+136,000) is either due to the changes in price and the switching of options from dealer short to dealer long positions. Since the price has only changed by ~$1.20 from 2021-11-09 to 2021-11-16, we can assume that the remaining delta (136,000) is from switching of options from dealer short to dealer long, thus adding positive delta to the stock.
Since the majority of calls incoming are dealer long, this means they were sold by retail investors. Taken all together, this suggests the price appreciation is being bet against.
Another interesting finding is how the bets are being placed. This is a bit harder to show as it is more dynamic in nature, but let's look at the options layout from 2021-11-12 and the most recent options layout:
Notice anything interesting? It seems like a lot of randomly placed calls and puts get “cleaned up, or consolidated in a sense. For instance, look at the strikes $90 to $155 on the call side and around $75. Yet despite these removals, options counts are increasing.
So, now this is a tad subjective, but what does that tell you? For me, personally, it tells me that the big fish have doubled-down and the small fish have left the pond. Institutions have distinct trading patterns (we discuss this in the Tier II material!) so you should see hints of “retail investor” trying to get their cut here and then moving out the way when things go sideways.
Lastly, let's look at the shorting graph.
Seems like a nice steady increase in recent times. Then let's look at the hedging matrix:
As the price goes up, hedging must be performed via selling. So, is the short-selling pure short selling or is it short-selling to cover hedge-requirements? Who knows and it doesn't matter. Shorting is shorting and at some point must be covered.
This gives evidence that future downside and reversion back to where VoEx said things were stable may be on the large institutions thoughts.
All in all we have:
So, I'll leave the rest to you!