Stocks quoted in this article:
Advanced Micro Devices, Inc. (NYSE:AMD) has popped higher today in the wake of an early morning upgrade, and options players are taking the opportunity to bet on additional gains through the end of the week. More than 33,000 call contracts have changed hands today, easily doubling typical intraday call volume. By contrast, fewer than 7,500 puts have crossed the tape.
The October 4.50 call garnering notable attention today will expire the day after AMD releases its third-quarter earnings. Currently, this is the most active AMD strike of the session, and 87% of the 7,150 contracts traded have done so at the ask price. Also, implied volatility has risen 6.5 percentage points, collectively suggesting the front-month calls are being purchased to open for a volume-weighted average price (VWAP) of $0.04. Breakeven at expiration on Friday, therefore, is $4.54, or 13.5% above the stock's current price of $4.00.
As noted, AMD is set to report earnings after the close on Thursday. The semiconductor firm has exceeded analysts' earnings expectations in six of the last eight quarters, but nonetheless has dropped an average of 2.7% the following day. What's more, AMD has endured some volatile post-earnings price action -- last quarter, the stock dropped 13.2% during the session after its earnings release; in the January quarter, the shares popped 11.4% higher one day after the news.
If AMD doesn't manage to break out above $4.50 by this Friday's closing bell, the call buyers stand to lose 100% of the modest premium paid. For some of these speculators, this may be the intended result. Advanced Micro Devices, Inc. (NYSE:AMD) is heavily shorted, with close to 22% of its available float sold short. As such, today's pre-earnings, out-of-the-money bets may have partially been the work of bearish traders establishing a hedge.
Option Briefs offer a concise look at recent notable trading activity. For more in-depth coverage of securities from an Expectational Analysis®
perspective, please visit our Trading Floor Blog section.