Advanced Micro Devices, Inc. (NASDAQ:AMD) is set to report earnings next week, and Wall Street isn’t expecting too much. The Street’s estimates right now stand at a 1- to 3-cent loss on revenues of $1.16 billion, and the “whisper number” is for a gain of 1 cent. As always, guidance will be key for AMD stock.
Last quarter saw Advanced Micro Devices’ shares get absolutely annihilated following both a revenue miss and lowered guidance.
With AMD now at an inflection point on the charts, I expect another big post-earnings move this quarter.
Our own Josh Enomoto was spot on with his previous bearish stance. He correctly pointed out the headwinds facing AMD stock, including from a competition standpoint versus chip heavyweights Nvidia Corporation (NASDAQ:NVDA) and Intel Corporation (NASDAQ:INTC). For the record, Advanced Micro, with a market cap of only $13.5 billion, is dwarfed by both NVDA ($101 billion) and INTC ($165 billion).
Taking a more bullish viewpoint, InvestorPlace contributor Larry Ramer highlights the possible suitors looking to acquire AMD. Widely followed Jim Cramer of CNBC had Advanced Micro Devices as his No. 1 target for 2017. Our own Dana Blankenthorn also postulates on the likelihood of a potential takeout.
From a technical analysis perspective, Advanced Micro is at a critical level.
The number to watch in AMD stock right now is $14.38, with shares failing repeatedly to break above this level over the past six months. A series of higher lows bodes well for AMD, and the stock did hold its 20-day moving average.
Implied volatility (IV) is extremely elevated in front of earnings, meaning that option prices are expensive. The at-the-money straddle for July 28 expiration shows that the big option players are looking for nearly a 14% earnings move.
To help defray some of the cost, and also take advantage of normally dampened price action in front of earnings, a calendar spread trade makes sense. Here is how AMD bulls and bears alike can trade earnings at an initial lower cost.
How to Trade AMD Stock
If you’re bullish or bearish, each of these trade ideas stands on its own:
- Bullish Trade: Buy the Jul 28 $14.50 call and sell the Jul 21 $14.50 call for a 50-cent net debit.
- Bearish Trade: Buy the Jul 28 $13.50 put and sell the Jul 21 $13.50 put for a 51-cent net debit.
Total cost on either position is roughly $50 per spread.
Traders looking for a big move in AMD stock following earnings, but unsure of direction, can combine the two trades into a dual calendar spread position for a total cost of $1.01.
As of this writing, Tim Biggam did not hold a position in any of the aforementioned securities. Anyone interested in finding out more about option-based strategies or for a free trial of the Delta Desk Research Report can email Tim at timbiggam@gmail.com.
