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Option Brief: Advanced Micro Devices, Inc. (NYSE:AMD) muscled to its highest price since mid-January yesterday, settling at $4.44. In light of the stock's surge, calls once again flew off the shelves, trading at twice the normal pace, as speculators placed bullish bets on AMD's short-term trajectory.
The equity's 30-day at-the-money implied volatility skyrocketed 14.3% to 42.5%, reflecting a growing demand for AMD's short-term options. Attracting the most attention were the June 4.50 and July 4.50 calls, which saw about 6,250 and 6,600 contracts change hands, respectively. The majority of the calls traded on the ask side, and open interest surged at both strikes overnight, confirming newly bought bullish bets.
The front-month calls crossed at a volume-weighted average price (VWAP) of $0.05, meaning the buyers will make money if AMD is sitting atop $4.55 (strike plus VWAP) at Friday's close, when the options expire. Profit potential is theoretically unlimited north of breakeven, while risk is capped at the initial premium paid for the calls, should AMD remain beneath the strike through the end of the week. In the wake of the stock's advance, delta on the call jumped to 0.39 from 0.19 at Friday's close, implying a roughly 39% chance of expiring in the money.
Due to the added month of time value, the July-dated calls traded at a VWAP of $0.20, making at-expiration breakeven $4.70 -- in near-two-year-high territory. The odds of an in-the-money finish at expiration are also greater for the longer-term call, due to more time for the expected move to pan out. Delta on the July 4.50 call rose to 0.49 from 0.39 the previous session, implying a near 1-in-2 shot of expiring in the money on Friday, July 18.
On the charts, Advanced Micro Devices, Inc. (NYSE:AMD) is extending its lead this morning, up 0.7% to $4.47, bringing its month-to-date gain to nearly 12%. However, the stock has finished just one session north of $4.50 since July 2012.