Options Bulls Play Chip Stock Pullback

A dismal current-quarter outlook is weighing on AMD today

Digital Content Manager
Aug 2, 2023 at 11:02 AM
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Advanced Micro Devices, Inc. (NASDAQ:AMD) stock is down 4.6% at $112.20 at last check, brushing off a second-quarter earnings and revenue win. Instead, what's weighing on the AMD seems to be the chipmaker's lackluster third-quarter revenue forecast amid a slowdown in cloud computing spending. However, the company revealed plans to debut an artificial intelligence (AI) chip by the end of the year, and posted an upbeat forecast for the end of 2023.

In response, Citigroup upgraded the stock to "buy" from "neutral" and raised its price target to $136 from $120, with five other analysts issuing price-target hikes as well. Support from the $110 region is containing today's pullback, while the stock's 80-day moving average looks poised to contain any moves lower, too. Year-to-date, AMD still boasts a 73.1% lead.

The options pits are exploding with activity. So far, 547,000 calls and 284,000 puts have already crossed the tape, which is four times the intraday average volume. Most popular is the weekly 8/4 120-strike call, followed by the 110-strike put in that same series, with positions opening at both.

This penchant for bullish bets fits the mold, per AMD's 50-day call/put volume ratio of 2.02 at the International Securities Exchange (ISE), Cboe Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), which ranks higher than all readings from the past year. 

Now looks like a good time to weigh in with options. The equity's Schaeffer's Volatility Scorecard (SVS) sits at 95 out of 100, implying it has exceeded option traders' volatility expectations over the past year.

 

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