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Option Brief: Advanced Micro Devices, Inc. (NYSE:AMD) has added more than 8.5% so far this week -- with help from Tuesday's bullish analyst attention -- and settled at $4.29 on Wednesday. What's more, the stock has added to that lead this morning -- an encouraging development for yesterday's crop of option bulls.
During the course of Wednesday's session, AMD saw roughly 15,000 calls cross the tape, representing a 61% mark-up to its average daily volume. For comparison, fewer than 2,600 AMD puts changed hands, not even one-third the norm.
The stock's 30-day at-the-money implied volatility (IV) edged 2.7% higher to 34.3%, reflecting a growing demand for short-term contracts. Most active was the weekly 7/25 4.50-strike call, where close to 2,200 contracts traded at a volume-weighted average price (VWAP) of $0.18. Almost three-quarters of the calls crossed on the ask side, IV popped 2.5 percentage points, and nearly all of the volume translated into new open interest. In other words, it appears the calls were bought to open.
The buyers will profit if AMD is perched atop $4.68 (strike plus VWAP) -- in annual-high territory -- at the close on Friday, July 25, when the options expire. In fact, profit potential is theoretically unlimited north of breakeven, while risk is capped at the initial premium paid, should AMD remain south of the strike through the option's lifetime.
Of course, there's a chance the buyers want the calls to expire worthless. Specifically, short interest represents nearly 17% of AMD's total available float, so yesterday's calls may have been purchased to hedge bearish positions. In this case, the speculators want AMD to retreat on the charts, but the long calls act as short-term "insurance" in the event of an extended rally.
Right out of the gate, Advanced Micro Devices, Inc. (NYSE:AMD) jumped 2.7% to $4.41, as traders digest a favorable ruling from across the pond, as well as the company's plans to consolidate its business units into two groups, effective July 1. The stock is now 14% higher year-to-date, and an extended uptrend could spook the aforementioned shorts into hitting the exits. At AMD's average pace of trading, it would take more than eight sessions to repurchase all the shorted shares -- ample fuel for a potential short-squeeze boost.