Buy This Advanced Micro Devices, Inc. (AMD) Stock Dip Like an Expert

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Momentum lovers have flocked to Advanced Micro Devices, Inc. (NASDAQ:AMD) shares for months now. That’s for good reason. The Sunnyvale, California-based semiconductor company has been on a rocket ship rise to the moon. We’re talking a 400%-plus ascent in AMD over the past year alone; from $2.50 to $13.

Buy This Advanced Micro Devices, Inc. (AMD) Stock Dip Like an Expert

And yet, shareholders are finally receiving their comeuppance this week.

Since topping at $15.50 on Tuesday, AMD stock has suffered four days of turbulence. The heavy selling has delivered a quick 16% haircut, returning shares back to a prior support level. For all its fury, the liquidation has yet to inflict any significant damage to the stock’s uptrend.

Advanced Micro Devices remains above its prior pivot low as well as the rising 50-day moving average.

AMD stock chart view 1
Click to Enlarge
Source: OptionsAnalytix

The one disconcerting development is the massive volume accompanying this week’s downturn. High-volume down days suggest institutional selling, which could continue to weigh on AMD shares.

Fortunately, we can structure an option position to profit even if the stock falls a bit further.

Embrace the Elevated Volatility in AMD Stock

Given its hyperactive DNA, AMD option prices are rich. That translates into hefty profits for traders willing to step up and sell them. It also helps by allowing us to sell far-out-of-the-money options, thereby creating a high probability of success.

If you think this price dip is eventually a buy, you could sell the April $11 puts for 37 cents. Consider it a bet that the stock will be above $11 at April expiration. Your breakeven price is $10.63. The maximum profit is limited to the 37-cent credit and will be captured if the puts expire out-of-the-money.

Due to its cheap price tag, the margin requirement for selling puts in AMD is relatively low. Most brokers should charge an initial margin of $150 or less. So the potential to capture $37 (37 cents x 100) offers an attractive return on investment.

By selling the put, you do obligate yourself to buy 100 shares at an effective purchase price of $10.63. If you’re not a willing buyer at this lowly level, then close the trade by buying back the put if AMD sits below $11 at expiration.

As of this writing, Tyler Craig owned short put positions in AMD.

For a free trial to the best trading community on the planet and Tyler’s current home, click here!


Article printed from InvestorPlace Media, https://investorplace.com/2017/03/buy-this-advanced-micro-devices-inc-amd-stock-dip-like-an-expert/.

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