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Option Brief: After shooting past $4 in the wake of a solid earnings report and subsequent price-target hikes last week, Advanced Micro Devices, Inc. (NYSE:AMD) is once again consolidating around this level, which has served as both support and resistance throughout the past two months. In yesterday's session, a number of optimistic option players bet on AMD to extend its lead past this mark over the next three months, as more than one-third of the day's call volume centered on the July 4 strike.
Specifically, 2,707 contracts were traded here -- 77% at the ask price, pointing to buyer-driven volume. What's more, implied volatility rose 1.2 percentage points and open interest rose the most of any strike overnight, making it safe to assume that a fresh batch of bullish bets was initiated. With AMD lingering near $4.02, these calls are sitting right at the money. Based on the volume-weighted average price (VWAP) of $0.36, though, breakeven at the close on Friday, July 18 -- when the options expire -- is $4.36 (strike plus VWAP).
Ahead of Tuesday's call-skewed session (calls outpaced puts by a more than 4-to-1 margin), bears were in control of AMD's options pits, which isn't all that surprising considering the stock is off 12.6% from its Jan. 15 year-to-date high of $4.60. However, AMD's next earnings report is tentatively scheduled for the week of July 14. Given that July-dated options will likely expire after those earnings are released, Tuesday's call buyers could be hoping for another single-session post-earnings pop of 11.7%, like the one the shares notched earlier this month. Regardless, should the stock fail to maintain its perch atop the $4 mark over the next several months and the options expire out of the money, risk to those traders still holding onto their positions is limited to the initial premium paid.