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As Advanced Micro Devices, Inc. (NYSE:AMD) consolidates south of the $4 level, short-term options speculators are looking at a potential breakout above this zone. Grabbing the spotlight in today's session is the October 4 call, which saw a number of mid-sized and large blocks change hands midday across multiple options exchanges.
Nearly all of these near-the-money options traded at the ask price, making it likely that some of the calls are being purchased to open, following a recent broader trend. Over the last 10 days on the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), 3,219 puts have been purchased to open, compared to 23,000 calls. The resulting 10-day call/put volume ratio of 7.15 stands higher than 73% of all similar readings taken during the past year, indicating above-average demand for long calls relative to puts. At the October 4 strike in particular, buy-to-open activity has run fairly steady with sell-to-open bets over the last several weeks.
Short interest remains elevated in AMD, however -- representing 22.6% of the stock's float. It's therefore possible that some of the recent demand for long calls might be due to short sellers looking to "play it safe" by hedging their bearish positions. They are opening their wallets a bit to do so, though; implied volatility for the October 4 call is at 62.3%, compared to the one-month historical (realized) volatility measure of 33.6%.
Assuming that today's call buyers were bullish in nature, though, they are looking for AMD to make a quick move north of $4.18, which is the strike price plus the volume-weighted average price paid for the option. For these calls to be profitable at expiration, AMD needs to gain more than 6.9% from its present perch at $3.91 by the close on Oct. 18.
For the past three weeks, the shares have been in a sideways pattern, contained to the upside by the $4 level. The stock's intraday high during this period was squarely at $4.00 -- on Sept. 19 -- and all daily closes have been south of this round number. On the downside, AMD has not closed lower than $3.75 within this time frame.
Before October options expire, AMD will venture into the earnings confessional after the close on Oct. 17. For the third quarter, analysts are projecting per-share results of 2 cents, a notable improvement from the semiconductor name's year-ago loss of 20 cents. In the last eight quarters, Advanced Micro Devices, Inc. (NYSE:AMD) has managed to top earnings estimates on six occasions, but has still slumped an average of 2.7% and 4.2% in the respective day and week after earnings were unveiled.
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