While Advanced Micro Devices, Inc. (NASDAQ:AMD) hasn’t set an official date for its next earnings release, the report should arrive somewhere around July 14.
With about two weeks to prepare, and AMD stock trading off its recent peak following the Brexit selloff, now is an excellent time to get a jump on positioning an earnings trade.
Following Advanced Micro Devices’ last trip to the earnings confessional in April, AMD stock rocketed more than 50% in reaction to a much-better-than-expected report.
Options premiums were blown away, with implieds pricing in a post-earnings move of about 7% at the time.
This time around, July 15 series implieds are expecting a move of about 14.2% — more than double prior expectations.
Speaking of expectations, Wall Street is forecasting a loss of eight cents per share from Advanced Micro Devices, a serious improvement from the -17 cents per share in the same quarter last year. Revenue is seen rising 1% year-over-year to $952.16 million.
Turning to Advanced Micro Device’s sentiment backdrop, we find a rising bullish tide for AMD stock. Currently, Thomson/First Call data indicates that only eight of the 25 analysts following AMD rate the stock a buy or better, compared to 11 holds and six sell ratings.
However, the past four analyst actions on AMD stock have been upgrades, with the most recent being an upgrade to “buy” from “hold” at Canaccord Genuity on June 16. Another solid quarterly report could prompt more analysts to follow suit.
And, while it’s not specifically a sign of rising bullish sentiment, short sellers are jumping ship on AMD. During the most recent reporting period, the number of AMD shares sold short fell by 8% to 83.7 million.
That said, some 12.9% of AMD’s float remains sold short and could fuel a significant covering rally following another earnings-induced surge.
Click to Enlarge In the options pits, calls are gaining momentum. The most recent July/August put/call open interest ratio rests at 0.90, falling sharply from its April highs. The July put/call ratio is a touch higher at 0.97, but Brexit is likely responsible for much of this negativity, and the reading should fall as we approach Advanced Micro Devices’ quarterly report.
With implieds pricing in a roughly 14% move for AMD, the upper bound lies near $5.84, while the lower bound rests near $4.40 from Tuesday’s close.
Technically speaking, AMD wasn’t hit as hard as most stocks during the Brexit selloff. In fact, the shares are rebounding sharply off support at their 20-day moving average — a bullish sign for AMD bulls going forward.
2 Trades for AMD Stock
Call Spread: With the shares in the middle of bouncing back and earnings still a bit down the road, now might be a nice entry point for a long-position on AMD. Traders looking to join the bullish crowd might want to consider a July 15 series $5.50/$6 bull call spread. At last check, this spread was offered at 11 cents, or $11 per pair of contracts. Breakeven rests at $5.61, while a maximum profit of 39 cents, or $37 per pair of contracts, is possible if AMD stock closes at or above $6 when July options expire.
Put Sell: Alternately, if you’re not sold on AMD stock’s upside potential, a July 15 series $3.50 put sell has a high probability of finishing out of the money. At last check, this option was bid at five cents, or $5 per contract. As usual with a put sell, you keep the premium as long as AMD stock closes above $3.50 when July options expire.
On the downside, if AMD trades below $3.50 prior to expiration, you could be assigned 100 shares for each put sold at a cost of $3.50 per share.
As of this writing, Joseph Hargett did not hold a position in any of the aforementioned securities.