Following a slight detour, the bull market for Advanced Micro Devices, Inc. (NASDAQ:AMD) is back, baby! And with earnings now in the rearview mirror, spectators can get back to the business of trading AMD stock without fear of any fundamental gremlins sabotaging their positions.
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Unlike fellow semiconductor stock, Intel Corporation (NASDAQ:INTC), which took a dirtnap following earnings and has yet to recover, AMD has bounced back vigorously following its minor drop. The Sunnyvale-based company bested expectations by earning 3 cents per share last quarter.
This has been a banner year for AMD on the stock front. As of Thursday’s close ($7.11), AMD shares were up 148% year-to-date. Momentum lovers have flocked to the stock all year-long, basking in its upside volatility and high-quality breakout patterns.
What caught my eye this week was the Monday-Tuesday moonshot, which carried shares above a key resistance level at $7. The breakout was accompanied by higher-than-average volume bringing validity to the breach.
And with the price pop, AMD stock is now perched nicely above all its major moving averages. Consider the damage inflicted during the September swoon officially corrected. This week’s strength is making yesterday’s pullback appear an attractive dip-buying opportunity. Provided prices don’t retreat below $6.75, I think sidelined bulls should be pouncing here.
The AMD Trade
The cheaper price tag of AMD makes it an easy candidate for a stock trade. If you’re looking for a straightforward way to profit from continued strength, grab shares here with a stop below the recent pivot low of $6.37. A break of that support level would invalidate the lion’s share of today’s analysis. For a price target, look for Advanced Micro Devices to return to $8 and beyond.
Traders preferring the higher probability route could sell the Dec $7 puts. They currently sit slightly out-of-the-money and offer 50 cents of premium.
The reward is limited to the 50 cents and will be captured if AMD sits above $7 at expiration. By selling the put you obligate yourself to buy 100 shares at an effective purchase price of $6.50.
To minimize the loss, I suggest bailing on this if AMD stock breaches the aforementioned support level.
At the time of this writing Tyler Craig had no positions in any of the aforementioned securities.
