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Option Bear Circles Advanced Micro Devices, Inc. (AMD)

Breaking down a synthetic short spread on Advanced Micro Devices, Inc.

by 2/12/2014 2:40 PM
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Option Brief: Advanced Micro Devices, Inc. (NYSE:AMD) is down 0.7% to $3.67 today, backing away from its 200-day moving average -- a trendline that hasn't been conquered on a daily closing basis since Jan. 21, before the stock's guidance-induced bear gap. What's more, one skeptical speculator is employing options to simulate selling AMD short.

Around midday, symmetrical blocks of 4,700 contracts crossed at both the January 2015 4-strike put and 4-strike call. According to data from the International Securities Exchange (ISE), the puts were bought to open for the ask price of $0.94 apiece, while the calls were sold to open near the bid price for $0.58 apiece, resulting in a net debit of $0.36 per pair of options.

Like a short seller, the trader's goal is for Advanced Micro Devices, Inc. (NYSE:AMD) to extend its retreat beneath the $4 level throughout the next several months. In this best-case scenario, the puts will gain intrinsic value, while the calls will remain out of the money. Risk, meanwhile, is theoretically unlimited, should AMD rally north of $4 within the options' lifetime.


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