Forget Ethereum. Buy Advanced Micro Devices, Inc. (AMD) Stock.

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AMD stock - Forget Ethereum. Buy Advanced Micro Devices, Inc. (AMD) Stock.

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Price action for Advanced Micro Devices, Inc. (NASDAQ:AMD) stock is not tied to reality right now. And I don’t mean that it the way that you might think. AMD stock is currently trading at the whims of ethereum speculators, which is not a reflection of the company’s true potential.

Forget Ethereum. Buy Advanced Micro Devices, Inc. (AMD) Stock.

Source: Asus

But that should change in two weeks’ time.

Ethereum has been hit hard this week. The cryptocurrency has traded sharply lower over the past two days, and was down more than 2% early Friday morning. The problem for Advanced Micro is that it’s GPU processors have become quite popular with ethereum blockchain miners, and that hype has spread into AMD’s price action.

But Advanced Micro Devices is so much more than an ethereum mining tool, and that’s what has me optimistic and ready to deliver a pair of trade ideas in just a moment.

The company’s new GPUs are going head to head with rival Nvidia Corporation’s (NASDAQ:NVDA) and winning in price and performance. Meanwhile, AMD is stealing marketshare from semiconductor giant Intel Corporation (NASDAQ:INTC) on multiple fronts, with Epyc outperforming Intel Broadwell server chips and Ryzen is grabbing market share from Intel’s Core PC lineup.

AMD stock chart
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So, while cryptocurrency may be creating some hype for Advanced Mico right now, it’s not the company’s core product line, nor is it the main reason you should own AMD stock. It’s a flash in the pan, and any dips in the shares due to ethereum are definitely buying opportunities.

Advanced Micro Devices will get the chance to remind investors of that fact later this month when it releases its quarterly earnings performance. The report is due out on July 25, and Wall Street is looking for a loss of a penny per share, up from a loss of 5 cents per share last year. Revenue is expected to rise 14.5% to $1.16 billion.

EarningsWihpsers.com, meanwhile, places the whisper number at a profit of a penny per share, which would be a coup for the bulls.

But while earnings expectations are on the elevated side, the rest of the sentiment backdrop remains bearish.

Options Pits and Sentiment

For instance, Thomson/First Call data reveals that 20 of the 30 analysts following AMD stock rate the shares a “hold” or worse. Shares are also trading north of their 12-month consensus price target of $12.85. Earnings should be more than enough to convince these holdouts to finally jump on the bandwagon.

Elsewhere, short sellers are already abandoning ship. During the most recent reporting period, the number of shares sold short dove by 7% to 145 million. That still represents more than 17% of Advanced Micro Devices’ total float, which could fuel a considerable short-covering rally on a breakout.

Turning to the options pits, the August put/call open interest ratio currently rests at 0.44, with calls more than doubling puts among near-term options. This ratio continues to edge lower as earnings approaches, likely due to short sellers hedging their positions.

Overall, August implieds are looking for a nearly 15% move following second-quarter earnings. That places the upper bound at $15.51 and the lower bound at $11.49. With solid support at $12, I don’t see a drop to $11.50 unless Advanced Mico has some skeletons hidden in this quarter’s report. Meanwhile, a pop above $15 could exacerbate the short-squeeze play and potential send AMD stock even higher.

Before we get to today’s trade recommendations, let’s look at how last month’s picks are doing. The July $13/$14 bull call spread hit its maximum return of about 156% after trading above $14 on June 22. However, if you missed your chance to close out this trade, AMD should return to the $14-plus area next week. Meanwhile, the June $11 put sell is well on its way to finishing out of the money at the end of next week.

2 Trades for AMD Stock

Bull Call Spread: The ethereum situation aside, AMD remains a strong bullish pick heading into earnings. Traders looking to bet on a breakout for AMD stock might want to consider an Aug $14/$15 bull call spread.

At last check, this spread was offered at 31 cents, or $31 per pair of contracts. Breakeven lies at $14.31, while a maximum profit of 69 cents, or $69 per pair of contracts, is possible if AMD stock closes at or above $15 when August options expire.

Put Sell: I was tempted to offer an even more bullish play for the second options trade, but we’ll not be greedy and keep it at the usual put sell for a more conservative play. Along those lines, an Aug $11 put sell should fit the bill.

At last check, this put was bid at 29 cents, or $29 per contract. In this trade, you keep the premium as long as AMD stock closes above $11 when August options expire. On the downside, if AMD trades below $11 prior to expiration, you could be assigned 100 shares for each put sold at a cost of $11 per share.

As of this writing, Joseph Hargett did not hold a position in any of the aforementioned securities.


Article printed from InvestorPlace Media, https://investorplace.com/2017/07/forget-ethereum-buy-advanced-micro-devices-inc-amd-stock/.

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