Flashing Bull Signal Could Help Chip Stock Bounce

Options are cheap at the moment

Deputy Editor
Apr 17, 2023 at 1:24 PM
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After trading above their 40-day moving average for the last month, the shares of chip name Advanced Micro Devices, Inc. (NASDAQ:AMD) just pulled back to the trendline. 

According to a study from Schaeffer's Senior Quantitative Analyst Rocky White, seven similar signals occurring in the past three years. One month after these signals, AMD was higher 43% of the time, and averaged a one-month return of 4.4%. Last seen down 3.3% to trade at $88.76, a similar move from AMD's current perch would put it at $92.67.

Today's pullback is also being saved by the 320-day moving average, a long-term trendline of resistance that switched to support in early March. Though the shares are starting on a down note after two straight weekly losses, they remain more than 37% higher in 2023.

AMD Chart April 172023

An unwinding of pessimism in the options pits could give Advanced Micro Devices stock a much needed boost. At the International Securities Exchange (ISE), Cboe Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), the stock's 50-day put/call volume ratio ranks higher than 78% of readings from the past 12 months, indicating an unusually heavy appetite for long calls.

That being said, speculating on Advanced Micro Devices stock's next move with options looks like a prudent play. The stock's Schaeffer's Volatility Index (SVI) of 48% stands higher than just 20% of readings from the last year. This means options traders are pricing in relatively low volatility expectations for the time being. Even better, the security tends to outperform said volatility expectations, per its Schaeffer's Volatility Scorecard (SVS) tally of 95 out of 100.

 

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