The wild ride in Advanced Micro Devices, Inc. (NASDAQ:AMD) has continued this month. AMD stock has whipsawed lower, then higher, following a string of mixed reports and analyst reviews.
But while the excess volatility may be driving stock traders bonkers, it has been a gold mine for AMD options traders … and it could be once again as the next round of price action kicks in.
We all know that AMD was among the best performing stocks of 2016, but that narrative hasn’t quite played out so far this year. Analysts have raised valuation concerns, given that Advanced Micro Devices’ main source of income is from hardcore gaming enthusiasts. These same analysts fretted when quarterly earnings showed that Ryzen CPU sales didn’t quite goose earnings as much as many had hoped.
But the latest reports on Ryzen sales have cast doubts on top of doubts, with Bank of America analysts noting that Advanced Micro Devices has shipped 307,000 Ryzen units so far this quarter, with 76% of those going out the door as high-end products that should boost operating margins “well above” the Street’s expectations.
What’s more, Nvidia Corporation’s (NASDAQ:NVDA) quarterly report showed that the gaming industry is still very much alive and kicking. That lifted not only NVDA stock, but prompted many to rethink their bearish assessment of AMD shares as well.
Click to Enlarge Technically speaking, AMD’s post-earnings plunge was considerably overdone.
Advanced Micro plunged into oversold territory near $10, and lingered there for nearly a week before finding price support and bouncing higher off their 200-day moving average. AMD stock is now heading higher with a vigor, and looking to fill in that post-earnings gap lower.
Only technical resistance at $12 stands in AMD’s way right now.
While BofA analysts reasserted their bullish stance, there are many analysts still in wait-and-see mode. According to Thomson/First Call, only 11 of the 29 analysts following AMD stock rate the shares a “buy” or better. What’s more, the 12-month consensus price target of $12.57 rests a mere 11.6% above AMD’s current perch.
In short, as Ryzen sales begin to flow in earnest, we could see upward revisions on both fronts, potentially adding buying pressure to Advanced Micro Devices stock.
There is also a fair amount of caution among AMD options traders. Specifically, the June put/call open interest ratio currently rests at 1.04, with puts outnumbering calls among back-month options. However, calls are beginning to return to AMD, as this ratio has fallen from a perch near 1.10 in early May.
Overall, June implieds are pricing in a potential move of about 9% for AMD stock heading into expiration. This places the upper bound at $12.28, while the lower bound rests at $10.24.
Support should remain firm in the $10 region, given that this area provided a floor following earnings, while a breakout above $12 could bring additional buyers to the table for Advanced Micro Devices as the shares continue to recover.
2 Trades for AMD Stock
Call Spread: While volatility remains, Advanced Micro has shown that it is rebounding just fine from its post-earnings sell-off. Traders looking to bet on an extension of this rebound might want to consider a June $12/$13 bull call spread.
At last check, this spread was offered at 24 cents, or $24 per pair of contracts. Breakeven lies at $12.24, while a maximum profit of 76 cents, or $76 per pair of contracts, is possible if AMD stock closes at or above $13 when June options expire.
Put Sell: Advanced Micro Devices is still facing headwinds from a rather large bearish contingent. While the shares have rebounded nicely from an oversold condition, there is the potential for resistance at $12 to limit the stock’s upside. As such, traders looking for a more neutral strategy to take advantage of technical support might consider a June $10 put sell.
At last check, this put was bid at 25 cents, or $25 per contract. In this trade, you keep the premium as long as Advanced Micro Devices closes above $10 when June options expire. On the downside, if AMD stock trades below $10 prior to expiration, you could be assigned 100 shares for each put sold at a cost of $10 per share.
As of this writing, Joseph Hargett did not hold a position in any of the aforementioned securities.