In a market that sometimes plays like an erratic arcade game, one company’s shares which are a strong reminder of this ability is Advanced Micro Devices (NASDAQ:AMD). Moreover, right now it’s time to put some change into an AMD stock options spread that’s built for success with less risk.
Let me explain.
Relative strength. Relative weakness. Absolute strength. Absolute weakness or some combination thereof. When it comes to stock investing those price qualities can and do change on the turn of a dime. And within the volatile semiconductor sector shares of AMD haven’t proven immune in 2020.
Demonstrated relative and absolute strength were a game winning combination early on in 2020 for AMD. To begin the new calendar year, shares immediately broke through to new all-time-highs for the first time since the dot-com crash. Then as the novel coronavirus took hold of risk assets and sent the stock market plunging to its historic, breakneck but short-lived bear market, Advanced Micro Devices’ shares also shined on a relative basis.
AMD investors were further rewarded too.
As the market, semiconductor sector and peers like Intel (NASDAQ:INTC) and Nvidia (NASDAQ:NVDA) found their footing off the Covid-19-driven March lows, shares of Advanced Micro outperformed with gains of nearly 60% from the stock’s bottom.
That same price action also produced market-beating returns of 20% for 2020 in just over a month’s time. Nice, right?
Investors could chalk up AMD’s strength to consistently strong and innovative product execution, market share capture, topnotch leadership from CEO Lisa Su and of course, a grotesquely oversold historic bear market. Life was good. And then, just when investors possibly thought it couldn’t possibly get any better, but were secretly confident it would, it didn’t.
The past two months have seen Advanced Micro Devices’ stock price stumble.
Following AMD’s month-long, bee-line rally that topped out on April 28 at $58, shares are down about 8% over the last two months. At the same time, the Nasdaq composite is hitting new highs and up by about 18%. And the Vaneck Vectors Semiconductor ETF (NASDAQ:SMH) is up a similar 16% and consolidating around its pre-Covid-19 all-time-highs.
So, what gives? Could it be relative valuation? AMD does appear pricey compared to many of its tech peers. But playing the investment game too cautiously has its limitations. The flip side of valuation concerns is often growth opportunities only look expensive, until they don’t—and only after yesterday’s investors are handsomely rewarded.
AMD Stock Weekly Price Chart
Source: Charts by TradingView
Right now, the market is ignoring AMD’s continued market capture, as well as the stock’s potential as a coronavirus play. In our estimation that’s a mistake, as are any technical worries today’s stricken stock action portends something more sinister.
Since hitting its market-leading relative high on April 20, shares of Advanced Micro Devices have worked to build a base-on-base pattern as a ‘W’ or high-level double-bottom has formed alongside a former corrective cup. It’s bullish overall.
The lengthy price contraction looks more promising as the double-bottom’s pivots successfully tested AMD’s prior all-time high. And with a bullishly-trending stochastics supporting the pattern’s development, an upbeat assessment for a higher share price looks even more compelling.
One potential blemish for bullish investors is AMD has failed once, if not twice already. A recent breakout attempt through the W’s mid-pivot of $56.98 launched shares narrowly thru the pattern’s high. But the stock stopped short of breaking out to new all-time highs. The failure also follows the botched initial cup base built during the worst of the Covid-19 fallout.
So, where does that leave Advanced Micro Devices? It’s not between a rock and a hard place. In fact, I’d say the arcade-like, up and down, but overall constructive behavior represents a way to buy shares on an irregular, but healthy pullback.
For investors that want to play AMD as a core holding with less fear of being gamed out of a growth stock during a marginal losing streak like today’s, I’d suggest a stock collar strategy. Currently and with shares near $55.25, for a couple extra quarters the July $52.5 put / $60 call combination is one favored and smartly built, limited and reduced risk combination designed for the long game in Advanced Micro Devices.
Disclosure: Investment accounts under Christopher Tyler’s management owns positions in Advanced Micro Devices (AMD) its 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.