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Calls have been the preferred option on Advanced Micro Devices, Inc. (NYSE:AMD - 2.50) in recent weeks, per data from the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX). Over the course of the past 10 sessions, speculators have bought to open almost 13 calls for every put on AMD. This call/put volume ratio of 12.72 ranks in the 94th percentile of its annual range, suggesting calls have been accumulated over puts at a near annual-high rate.
For a stock that's down roughly 54% year-to-date, this campaign for calls may seem puzzling. Remember, though, that the full profit potential of a long put is limited to the strike price minus the premium paid. In other words, AMD's current perch of $2.50 also represents the maximum reward for put buyers (less the net debit).
This bullish disposition is evident in today's session, where calls are easily outstripping puts. Roughly 11,000 calls have changed hands so far, compared to fewer than 7,400 puts. Speculators have turned their attention to AMD's January 2013 3.50-strike call, which has seen around 2,500 contracts trade. All of these have crossed at the ask price, and implied volatility was last seen higher -- indicating buy-to-open activity.
By purchasing these out-of-the-money calls, traders need AMD to rally nearly 42% off current levels by January expiration. In this best-case scenario, the speculators will profit with each step north of $3.54 (the strike plus the volume-weighted average price [VWAP] of $0.04) the security takes through Jan. 18.
Additionally, these call players may be taking notice of AMD's recent rebound. In addition to outperforming the broader S&P 500 Index (SPX) by more than 24 percentage points over the last month, the stock has bounced more than 38% off its annual low of $1.81, tagged on Nov. 16. What's more, AMD is now trading a third consecutive week above its 10-week moving average, suggesting this former layer of resistance may now be emerging as support.