How to Trade Advanced Micro Devices Stock into Earnings

Only three trading sessions remain before Advanced Micro Devices (NASDAQ:AMD) reports earnings. Unfortunately, the past few semiconductor companies that stepped up to the plate have struck out, so it’s not as if sentiment surrounding the chip space is strong right now. Nevertheless, perhaps AMD stock will finally turn the tide for the industry.

What to Expect From AMD Stock Ahead of July's Earnings Report
Source: Fabio Alcini /

In today’s article, we’ll break down its price chart and volatility expectations ahead of the big event. Then, we’ll build a few top-shelf trade ideas for bulls and bears to play.

Some promising technical developments have formed over the past month, so the charts say buyers have the upper hand into the number.

AMD Stock Charts

Advanced Micro Devices (AMD) weekly chart with bull retracement
Source: The thinkorswim® platform from TD Ameritrade

For a sense of the big picture and macro price trends, let’s begin with the weekly time frame of Advanced Micro Devices shares.

For starters, its growth has been indisputable. Six years ago, this was a $1 stock. Now, it’s nearly $100. Talk about a turnaround. Along the way, it’s gifted buyers with countless entry points. Weekly retracements and breakouts have delivered quick and large profits for those with the wit to spot them.

As recently as May, AMD stock was on the ropes, threatening to break major support at $74. Since then, we’ve seen a magnificent rebound pull prices back above the 20-week and 50-week moving averages. Significant resistance at $84 also gave way, allowing AMD to make a higher weekly pivot high for the first time since last December. Volume ticked higher on the breakout, confirming its validity. Those that missed the breakout trade got their opportunity this week to buy the dip.

As is often the case, prices revisited the old ceiling, and it has become a new floor. Provided AMD is above $84, the path of least resistance is higher. For further detail, let’s take a brief look at the daily chart.

Advanced Micro Devices (AMD) daily chart with bullish reversal
Source: The thinkorswim® platform from TD Ameritrade

Prices are rising over 0.50% in early-morning trading on Thursday. If the gains hold, this will mark the fourth positive session in a row. Notably, prices are lifting back above the 20-day moving average, which means the stock has one less potential resistance zone to deal with. We’ve also nearly fully recovered all that was lost during last week’s sharp descent.

Wednesday’s earnings report will set the tone moving forward, but one thing is clear – buyers have the wind at their back into the number.

Earnings Expectations

While the direction of the looming earnings gap remains elusive, traders have tools at their disposal to determine just how much movement we should see. Using options prices, we can gauge market expectations.

The contracts that expire on July 30 are baking in a move of +/- $6.50, or 7%. Because that includes six trading sessions in addition to the earnings jump, we can surmise the expected gap will be well below 7%. I’d guess 4% or so is the baseline.

In crafting a trade around the event, here are a few other items to keep in mind.

First, most of the time, the stock moves less than expected and brings profits to options sellers.

Second, the recent performance trend for chip stocks isn’t great. For example, Taiwan Semiconductor (NYSE:TSM), Micron Technology (NASDAQ:MU), and Texas Instruments (NASDAQ:TXN) all gapped lower after their reports. While this doesn’t guarantee anything for AMD, it does tell you something about the sentiment surrounding semiconductor earnings these days.

Here are two trade ideas – one for bulls, one for bears.

Bull Trade: Sell the August $82/$78 bull put for 56 cents.

Bear Trade: Sell the August $100/$105 bear call for 61 cents.

 On the date of publication, Tyler Craig held LONG positions in TSM. The opinions expressed in this article are those of the writer, subject to the Publishing Guidelines.

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