After going nowhere in 2017, Advanced Micro Devices, Inc. (NASDAQ:AMD) bulls are back and in good position to take advantage of strength off and on the AMD stock chart. And for like-minded investors looking to embrace this bullish outlook, a collar position is still the position of choice. Let me explain.
A good start to 2018 just got even better for AMD stock and its investors. Shares ramped higher by nearly 7% Wednesday following the company’s all-around, better-than-expected earnings confessional and bringing it’s year-to-date return to 34%.
Some of the highlights from the report that are inspiring bulls, as well as heavy short interest (21%), are items like AMD’s return to profitability in 2017. That’s a feat that has been M.I.A. since 2011. Furthermore, the company easily topped Wall Street’s sales expectations with quarterly revenues jumping 34% and full-year sales growing by about 25%.
As good as 2017 has proven off the price chart for AMD’s turnaround quest with the creation of ‘significant business momentum’ spearheaded by the company’s Ryzen and Radeon chips, 2018 should prove much more important to its longer-term plans. In fact, CEO Lisa Su stated as much in calling this a “defining year” for AMD’s ability to grow its server business and an important growth market dominated by rival Intel Corporation (NASDAQ:INTC).
Yet, with Su also saying AMD “remains on track” in that goal and the company having continued to turn ambitious business plans into reality under her stewardship, this strategist is optimistic of AMD stock’s prospects off and on the price chart.
AMD Stock Weekly Chart
For AMD shareholders, 2017 was a period marked by a volatile, but healthy correction. The prior year the stock had witnessed a massive run higher and the year-long consolidation worked to establish a bullish high level double bottom, while likely diffusing overly bullish expectations 2017 would produce similar easy gains for AMD stock.
Looking forward and on the heels of AMD’s bullish earnings reaction, shares are in the upper third of the base and ultimately poised to break above the trading range. Given the size of basing pattern, as well as the fore-mentioned bear population which could be incentivized to cover their shorts; a continuation breakout move in 2018 could reasonably see AMD stock rallying conservatively towards $20-a-share.
AMD Stock Collar
In early January with AMD at $11.55, I outlined a Feb $14 call / $11 put collar priced for $11.94. The strategy was for bulls open to the idea of a re-emerging uptrend out of AMD stock’s double-bottom base, but who also appreciated the benefits of defined and reduced risk.
Now and with shares at $13.74, the spread has increased to $13.32. It’s a nice return. But given what’s been addressed, I see this type position as one to ultimately adjust based on the belief that AMD’s bullish rally will continue and the possibility for much larger returns by ratcheting the collar ‘up and out’ and trading with the trend.
Reviewing AMD’s options board for fresh ideas, the Mar $16 call / $12 put collar is priced for $13.74 and the same as what a trader would pay for a straight-up stock position. For the reasons already discussed, this type of position remains attractive from a risk standpoint.
The real cost or compromise are collar profits can trail owning a simple stock position. This is tied to the initial cap the Mar $16 call puts on the investor’s return potential. Bottom-line though, with 16% of upside and the ability to increase that return through future adjustments, like-minded AMD stock bulls shouldn’t be losing any sleep either.
Disclosure: Investment accounts under Christopher Tyler’s management currently own positions in AMD stock and / or AMD derivatives, but no other securities 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 and StockTwits.
