Advanced Micro Devices, Inc. (NASDAQ:AMD) can’t get a break. The company currently has the fastest and cheapest CPUs on the market. It’s also poised to take market share from Intel Corporation (NASDAQ:INTC) and is seeing more demand for its GPUs in the cryptocurrency movement than Nvidia Corporation (NASDAQ:NVDA).
Click to Enlarge And yet, AMD stock is down some 24% since its February highs and continues to suffer setback after setback. As a result, AMD stock’s 14-day RSI has remained below 50 for much of the past several months.
In short, the shares rarely get anywhere near overbought levels, making them a steal compared to competitors like Nvidia.
Volatility, rather, has been the name of the game for AMD stock. July series options implieds are currently pricing in a more than 10% move for the shares heading into next month’s expiration.
Typically, AMD doesn’t see this kind of volatility without a major event on the horizon, and this time around, options traders appear to be keying off the potential arrival of early sales numbers for AMD’s just released Radeon Vega GPU. You know, the one Apple Inc. (NASDAQ:AAPL) is putting in the new iMac Pro?
If July implieds are correct, AMD could rise as high as $12.67 or fall as low as $10.33. Unfortunately, there aren’t any major hurdles to be broken with these projections. To really get AMD going, the stock would need to breach $13 or even $14 per share. But if early figures for Vega come in strong — the GPU is already available for pre-order — such a breakout is certainly within the realm of possibilities.
And, judging from AMD’s sentiment backdrop, there’s plenty of sideline cash that could be brought to bear on the shares. For instance, only 11 of the 29 analysts following AMD stock rate it a “buy” or better. What’s more, the 12-month consensus price target of $12.66 rests only 10% above AMD’s current perch — well within the reach of July implied projections.
Short interest could also be a considerable factor. Following a 9% increase during the most recent reporting period, nearly 19% of AMD’s float is now sold short. That said, nothing shy of a breakout above $14 is gonna move these bears given AMD’s recent price action.
That’s not to say that AMD short-sellers aren’t worried, however. Specifically, the July put/call open interest ratio currently rests at 0.46, with calls more than doubling puts among near-term options. This ratio has plunged sharply from its early May readings north of 1.10, and is either a sign that bears are hedging their short positions, or AMD bulls are expecting a significant rally. Either way, it bodes well for AMD stock.
2 Trades for AMD Stock
Call Spread: Volatility is your friend when trading options, and AMD has plenty of potential heading into July expiration next month — especially if we see any early data on Vega GPU sales. Traders looking to bet that AMD will finally shake off the stigma plaguing its tech sector peers and move higher might want to consider a 21 July $12/$13 bull call spread.
At last check, this spread was offered at 28 cents, or $28 per pair of contracts. Breakeven lies at $12.28, while a maximum profit of 72 cents, or $72 per pair of contracts, is possible if AMD stock closes at or above $13 when July options expire.
Put Sell: If you’re worried about the analyst community and more of the same mainstream media sentiment for AMD in the coming month, a more neutral strategy to take advantage of technical support might consider a July $10 put sell.
At last check, this put was bid at 24 cents, or $24 per contract. In this trade, you keep the premium as long as AMD stock closes above $10 when July options expire. On the downside, if AMD 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.