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Advanced Micro Devices, Inc. (AMD) Trader Bets On a Big Move

AMD was targeted for a long strangle on Friday

by 5/6/2013 9:57 AM
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Advanced Micro Devices, Inc. (NYSE:AMD) has tacked on more than 37% since last Monday to trade at $3.68. One speculator on Friday bet the stock will make another big price swing (regardless of direction) in the near term. In afternoon trading, two symmetrical blocks of 4,000 contracts changed hands at AMD's June 4 call and June 3.50 put at the respective ask prices of $0.25 and $0.24 per contract. Open interest rose at both strikes over the weekend, and data from the International Securities Exchange (ISE) confirms that the positions were bought to open. Summing it all up, it appears that a long strangle was initiated on AMD for a net debit of $0.49 for each pair of contracts.

Ideally, Advanced Micro Devices will either rally above $4.49 (call strike plus the net debit) or sink below $3.01 (put strike less the net debit) by June expiration. Gains are theoretically unlimited to the upside, and capped at $3.01 (put strike less initial cash outlay) to the downside. Should AMD remain between the two breakeven rails over the next seven weeks, the most the speculator stands to lose is the initial premium paid.

From a wider sentiment standpoint, traders have been bearishly aligning themselves toward Advanced Micro Devices in recent weeks. Since April 22, the stock's Schaeffer's put/call open interest ratio (SOIR) has risen to 0.58 from 0.27, as near-term put open interest surged 633%. Not surprisingly, this ratio ranks in the highest percentile of its annual range, implying short-term speculators are more put-heavy now than at any other time within the past year.

As mentioned, Advanced Micro Devices, Inc. (NYSE:AMD) has put on quite a technical show of late, and in addition to last week's solid advance, the equity has outperformed the broader S&P 500 Index (SPX) by more than 34 percentage points throughout the last 20 sessions. This positive price action is continuing in today's session, with the stock tacking on more than 1.9% right out of the gate.


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