Stocks quoted in this article:
Option Brief: Advanced Micro Devices, Inc. (NYSE:AMD) is 2.5% higher this afternoon, amid unconfirmed rumors that the semiconductor concern may be a potential takeover target for Texas Instruments Incorporated (NASDAQ:TXN). Against this backdrop, AMD calls are trading at three times the average intraday pace, and outstripping puts by a roughly 4-to-1 margin.
Short-term speculators are dominating the day's action, as evidenced by the stock's 30-day at-the-money (ATM) implied volatility, which has jumped 5.1% to 33.1%. Specifically, eight of the 10 most active options expire in the next six weeks, with AMD's weekly 6/6 4-strike call seeing the bulk of the action. Diving deeper, it appears the majority of these speculators are rolling the dice on additional upside through week's end.
More than 5,200 contracts have changed hands at this ATM strike -- 77% of which have done so on the ask side, hinting at buyer-driven activity. Plus, volume exceeds current levels of open interest, pointing to the initiation of new positions.
The volume-weighted average price (VWAP) for the calls is $0.06, making breakeven at this Friday's close $4.06 (strike plus VWAP). Gains are theoretically unlimited with each step above this mark Advanced Micro Devices, Inc. (NYSE:AMD) lands at week's end, while losses are limited to 100% of the premium paid, should the stock settle south of the strike price. Of note, AMD topped out at an intraday peak of $4.05 earlier today, but was last seen trading at $4.04.