Momentum chasers have been running after Advanced Micro Devices (NASDAQ:AMD) shares for months. If recent technical signals are any indication, their desire to buy shows no signs of slowing. Today we’re providing an update to the strongest semiconductor on the planet and highlighting how you can profit from the looming breakout in AMD stock.
Even though I’ve written about Advanced Micro Devices a few times recently, I’m still impressed every time I revisit its chart to measure how much it’s risen. Since April AMD has climbed from $9 to $33, a blistering 266% gain. Naturally, the lift has been driven by institutional accumulation. The big boys have been quick to add this to their portfolios. The buying binge is easily seen by the groundswell in volume.
While there have been a few pit stops along the way, every pause has been minor, and even short-term moving averages like the 20-day have had a hard time keeping up. The current bout of sideways chop striking the stock is approaching the end of its second week. That makes it the longest period of digestion we’ve seen since last month’s breakout surge above $20.
A key question is how traders should treat the calm that has settled on the stock. I suspect viewing it as a pause that will refresh to the upside. Here’s why.
First, is the power of trend. The virtuous cycle that has propelled AMD stock to the stratosphere is worthing betting with, not against.
Second, the massive distribution candle that struck on Sept. 13 lacked any followthrough. In a weaker stock, such a powerful reversal candle would have delivered a multi-day pullback. But with AMD? Nothing!
AMD Stock Options Trade
The elevated volatility and cheap price tag of the stock make it a prime candidate for naked puts. To provide an upside kicker, I also like buying out-0f-the-money (OTM) calls. Let’s use a risk-reversal:
Sell the Oct $30 put for $1 and buy the Oct $36 call for $1.
If the stock drops, we’re obligated to buy shares at $30. That’s the downside risk. The profit potential is unlimited because of the long call, but I suggest taking profits into strength if AMD breaks out over the coming days.
As of this writing, Tyler Craig held neutral AMD options positions. Want more education on how to trade? Check out his trading blog, Tales of a Technician.
