Go Long Advanced Micro Devices, Inc. (AMD) Stock for Free

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Equity markets are having a great 2016 so far but this pales in comparison to the year that Advanced Micro Devices, Inc. (NASDAQ:AMD) is having. Since the February low, AMD stock is up 400% in 200 bars.

Go Long Advanced Micro Devices, Inc. (AMD) for Free

Fundamentally, Advanced Micro Devices has only one competitor in Intel Corporation (NASDAQ:INTC). However, INTC is a mighty foe. It would be hard to convince me to buy a computer with AMD chip if all else is equal. Nothing against their technology it’s just a matter of preference. I believe that most peripherals were built with INTC engines in mind.

Luckily for AMD, not everyone cares about the engine of their PC.

Technically, shorting AMD stock is a risky proposition especially in this uber-bullish equity market. Almost everything is at all-time highs or close to them.

Going long AMD after such a long rally is also risky but seems like the easy trade. It is important to note that most analysts still have a “hold” rating on it, and therein lies the opportunity.

Sooner or later, these pros have to join the green party. If markets continue the rally into 2017, AMD stock should continue to be bid higher.

AMD Stock Trade Idea

The Trade: Buy the April $11/$12 debit call spread. This is a bullish trade for which I pay 25 cents per contract to open. This is my max risk. Ideally, I want AMD stock to rise past my spread for a chance to triple my money.

AMD Stock Chart
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I usually like to balance my trades. In this case, I want to lower my out-of-pocket expense at the cost of taking additional risk but at a much lower level than the current price.

The Bank (optional): If I am convinced of the value of Advanced Micro Devices, Inc. then I can become more bullish by selling premium. Sell AMD Jun $5 put. This also is a bullish trade for which I collect 25 cents per contract. I need AMD stock to stay above my sold strike or risk accruing losses. I only sell naked puts if I am able and willing to own the stock at the strike sold. From here, this is a 45% buffer from current price.

Taking both trades results in a zero cost setup, meaning that I would be long AMD for free as long as the stock stays above my sold put. If so, then any premium I collect from selling my debit call spread would be pure profit.

I am not required to hold any of my trades through their expiration. I can close at any time for partial gains or losses at any time.

Nicolas Chahine is the managing director of SellSpreads.com. As of this writing, he did not hold a position in any of the aforementioned securities. You can follow him on Twitter at @racernic and stocktwits at @racernic.

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Nicolas Chahine is the managing director of SellSpreads.com.


Article printed from InvestorPlace Media, https://investorplace.com/2016/12/go-long-advanced-micro-devices-inc-amd-stock-free/.

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