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Are Advanced Micro Devices, Inc. (AMD) Call Buyers Really Bullish?

High levels of short interest suggest long AMD calls may be hedges

by 12/10/2013 2:07 PM
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Option Brief: Advanced Micro Devices, Inc. (NYSE:AMD) shares have risen 2.5% today to trade at $3.72. With that price movement has come a surge in call volume. Specifically, around 37,000 calls are on the tape so far -- more than three times the intraday average.

Most active is AMD's December 4 call, which has seen nearly 12,500 contracts change hands -- 84% at the ask price, suggesting they were purchased. Implied volatility has ticked slightly higher, and data from the International Securities Exchange (ISE) confirms some buy-to-open activity. By purchasing the calls, today's traders expressed faith that the stock will muscle from its current perch past the strike price by next Friday's close. If the move fails to materialize, the most they risk parting with is 100% of the premium paid.

However, an ulterior motive may have driven some of today's out-of-the-money call buying. Specifically, because AMD is heavily shorted -- short interest grew nearly 22% during the last two reporting periods, and currently makes up 19.5% of the stock's outstanding float -- the long positions may have been initiated by short sellers to limit potential upside risk in the short term.

On the charts, Advanced Micro Devices, Inc. (NYSE:AMD) has performed admirably this year, tacking on 55%. Elsewhere, the semiconductor concern has a busy week, having presented at the Raymond James Systems, Semiconductors, Software & Supply Chain Conference today, and slated to take the stage tomorrow at the BMO Capital Markets 2013 Technology & Digital Media Conference.


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