Following earnings in Advanced Micro Devices (NASDAQ:AMD), technical supports continue to make 2018 a breakout year both off and on the price chart for investors. But for like-minded bulls, a well-positioned and moderately bullish long butterfly strategy may be the better way to suit up in AMD stock right now. Let me explain.
Whether you’re looking at the bottom line or top line, a still-large den of bears in AMD stock continue to have it all wrong. The latest evidence against Advanced Micro’s 24% short interest was delivered Wednesday evening as the semiconductor outfit’s Q2 earnings report was nothing short of terrific.
From beating the Street’s profit and sales estimates to Advanced Micro delivering its strongest earnings in seven years, AMD investors are riding a nice bullish trend off the price chart. The results reaffirm that the company’s turnaround under the solid leadership of CEO Lisa Su is working.
AMD Stock Monthly Chart
On the price chart of AMD stock, bulls are also in a very supportive and trendy position. A recent breakout from a “slightly odd, high-level double-bottom base” was backed up measurably by Thursday’s bullish earnings reaction which blasted shares through a 38% Fibonacci resistance level dating back to AMD’s last significant high in 2006.
Technically, shares of Advanced Micro are in position for another bullish leg to fresh intermediate highs. As well, in our estimation, AMD is likely to shed its often bearishly volatile persona and emerge with a more benevolent or friendlier price trend in the coming weeks and months.
AMD Stock Moderately Bullish Butterfly
A recent spread outlined on AMD is showing nice profits. An October-dated bull call spread has increased from 80 cents to $1.60 to capture a double as shares have moved from $16.36 to $19.25. And with nearly three months of calendar life, the $18/$22 call combination also has plenty of upside potential left in it.
Reviewing the AMD options board for new ideas and in spite of increased enthusiasm for the stock’s price trend to continue, I do like the idea of a well-placed, moderately bullish long butterfly for positioning.
Specifically, with shares of Advanced Micro at $19.25 the Oct $21/$23/$25 call combination for 25 cents is favored. This particular butterfly falls outside of the next earnings catalyst, which for this sort of strategy is a good feature as AMD stock gains should be a bit more limited.
Ultimately, this butterfly offers some type of expiration profit capture in-between $21.25 to $24.75. It also has just more than 1% of downside risk. That’s very nice protection, while offering a maximum gain of $1.75 if time and price aligned perfectly at $23 in AMD stock on expiration.
Lastly and given the strong price move this week, the measly quarter paid for this strategy might free up investors to get a bit more aggressive with a harder long delta strategy in the event of any profit-taking activities in the near-term of a secular growth story.
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.
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