The performance that Advanced Micro Devices, Inc. (NASDAQ:AMD) put on display for the last 12 months was jaw-dropping. While it’s not at its all-time high now, AMD stock went from under $4 per share last April to $13 now.
Fundamentally I still say that there is room for AMD and all its competitors to flourish. Our existence is becoming more dependent on technology at such a fast pace that we’ve given its components generic umbrella names like ‘the cloud’ or the ‘internet of things.’ These are terms that are not specific and that’s because tech now casts a wide net over our lives.
This is not a bad thing, especially not for companies who supply us parts to the brains of these technical trinkets.
AMD is one of the few companies who should have a place at the table for years to come. Before you peg me for a perma-bull, I recently shared a trade to short AMD with some success. But that was an idea against a specific price action set up. So today I would be more inclined to go long AMD through 2017.
Click to Enlarge Technically, AMD stock is at a two month old pivot point where $13 per share has served as resistance and support. Now it’s setting higher lows, trying to recover $13 on its way to retest the highs. Having said that, this is not an obvious long entry point.
To make matters riskier, AMD reports earnings soon, and for the short term, those events add a big sense of gambling to any thesis.
So Instead or risking $13 here and without a safety net I will resort to the options market where I can build some room for error.
AMD Stock Trade Idea
The Bet: Sell the AMD Jul $10 put naked and collect 35 cents per contract, leaving you with an 80% chance of success. If Advanced Micro Devices falls below $10, I would be put the stock and accrue losses under $9.65 per share. I am comfortable that with a 23% buffer, I can manage the short-term drops against my committed risk.
I realize that selling naked puts is unattractive to a lot of investors, and for those people I can modify the trade to be a sold spread instead.
The Alternate Bet: Sell AMD Jul $11/$10 credit put spread for 20 cents has a slightly smaller chances of success but a much smaller maximum potential loss. If successful, the spread would still deliver 25% yield on risk.
Learn options as easy as 1-2-3 in a personal 1on1 webinar here. 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.
