Last year’s turnaround in Advanced Micro Devices, Inc. (NASDAQ:AMD) is back in play and looking good for investors. But with key product rollouts looming, don’t be too Zen about the trend being your friend. Instead, control your destiny with a little insurance against AMD stock.
As I wrote last month in front of earnings, 2016 was the best of times for AMD stock, and for good reason. Of course, 2017 is looking good as shares continue to gain on the company’s improving business trend. Shares were catapulted to new multiyear highs after fourth-quarter earnings topped Wall Street’s views.
Still, the rest of the year is looking like make-or-break time for the semiconductor outfit for two reasons: Ryzen and Vega.
Ryzen is set to be released in early March as Advanced Micro Devices’ new CPU for PCs and servers. The main competition is chip giant Intel Corporation (NASDAQ:INTC) — a company facing its own design challenges and whose manufacturing lead will shrink markedly with the release of Ryzen.
On the conference call, Advanced Micro Devices teased investors, stating it had secured a number of high-end PC design wins for Ryzen, which is based on AMD’s next-gen Zen CPU core architecture.
Advanced Micro Devices is also releasing its Vega GPU line in 2017. The product is expected to come to market during the second quarter and has its sights on gaining market share in the server and high-end PC markets.
The big competition in this space is Nvidia Corporation (NASDAQ:NVDA). Nvidia’s software dominance will be a substantial challenge for AMD to crack, but one it’s readying for with an open-source approach.
Advanced Micro Devices must successfully execute for AMD stock to have any chance to keep building on its red-hot 2017. If not, it would undo a significant amount of price action.
AMD Stock Chart
It goes without saying that the price action has been very generous for AMD investors. But notwithstanding the company’s obvious business risks, there’s no reason to believe the stock’s bullish trend won’t still be friendly, and won’t still improve.
The better part of last week has been spent digesting the bullish gains in AMD stock, though not to point of finding support from an overbought stochastics. It’s a minor concern. My technical point of view? AMD’s constructive price action and potential for improvement outweighs this secondary price indicator.
How to Trade AMD Stock Right Now
With AMD stock at $13.58, I like the April $17/$12 collar.
The collar — priced for $13.78, or 20 cents over a naked long stock purchase — allows for guaranteed downside protection at $12 and amounts to an effective stop-loss of about 13%.
The insurance policy afforded by the $12 put is stationed a few percent below December’s highs in AMD and pennies under the post-earnings closing print. The protection could come in handy.
If bullish momentum does prevail, profits are initially capped by the $17 call. At April expiration, that works out to a gain of more than 23% if shares are at or above the sold strike. Those profits nearly double the downside risk for a premium of just 20 cents.
Investment accounts under Christopher Tyler’s management do not currently own positions in any of the securities or their derivatives mentioned in this article. The information offered is based upon Christopher Tyler’s observations and strictly intended for educational purposes only; the use of which is the responsibility of the individual. For additional market insights and related musings, follow Chris on Twitter @Options_CAT.