The market turmoil train has officially arrived in the tech sector. Heavy hitters from Amazon.com, Inc. (NASDAQ:AMZN) to Apple Inc. (NASDAQ:AAPL) are being, well, hit heavily. Even semiconductors, which that could heretofore do no wrong, are suffering blows. And that has me eyeing Advanced Micro Devices, Inc. (NASDAQ:AMD).
As luck would have it, AMD stock is now testing a critical support level, creating some interesting trading opportunities.
We begin, as usual, with a birds-eye view of the weekly chart. After vaulting into the double digits amid a meteoric rise, AMD settled into a two-year range. It has been choppy, sloppy and riddled with volatility … but buyers have proved staunch defenders of the $10 support zone. We’ve seen three such tests, and all have passed with flying colors. With this week’s drubbing, we now have our fourth test.
Since forming a pivot high at $12.82 in early March, AMD shares have been in a downward spiral. With today’s probe to as low as $9.80, we’re talking about a 24% drubbing here. That’s a big move in a short period and the stock is understandably flashing significant oversold signals. The million dollar question is whether buyers will once again sally forth and save $10 once again from bears.
If you’re willing to bet on the answer being “yes,” then I have a trade idea for you — though at a minimum, I suggest waiting for confirmation before pulling the trigger. A break of this morning’s high ($10.17) could do the trick.
Sell AMD Puts and Relax
Advanced Micro Devices’ cheap price tag and high volatility make it a mighty fine candidate for naked puts. The premium available is juicy, and the margin requirement is minimal. Together that creates a high return on investment.
Sell the May $9 put for 50 cents. If the stock sits above $9 at expiration, the max reward of $50 will be yours for the keeping. The initial margin requirement is only around $100, so we’re talking about an eye-popping 50% return here. If AMD bites the dust, you are obligated to buy shares at a cost basis of $8.50 which may not be a bad entry if you like the stock longer-term.
As of this writing, Tyler Craig didn’t hold positions in any of the aforementioned securities. Want more education on how to trade? Check out his trading blog, Tales of a Technician.
