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One bearish trader rolled out his bet on Advanced Micro Devices, Inc.
Advanced Micro Devices, Inc. (NYSE:AMD) is down 2.5% this afternoon to trade at $2.72, bringing its year-to-date loss closer to 30%. Meanwhile, options traders are busy, with one bearish bettor rolling out his position by a few months.
Diving right in, puts are changing hands at 26 times the usual intraday rate, and more than 19 times the pace of calls. Of the 59,000 puts that have crossed the tape, more than 57,000 have done so at two strikes -- the January 2015 2.50 strike and April 2.50 strike -- where identical blocks of 28,300 contracts traded at around noon ET.
The January puts were exchanged at the bid price, and implied volatility (IV) edged lower with the transaction, suggesting they were sold to close. By contrast, the April-dated puts traded above the ask price, and IV rose, indicating they were bought to open. In other words, it appears this bearish speculator rolled out his out-of-the-money position by three months, using the proceeds from the former to help purchase the latter. This theory is confirmed by Trade-Alert.
In short, the trader bought himself extra time, expecting Advanced Micro Devices, Inc. (NYSE:AMD) to move below $2.50 by April (rather than January) options expiration. The stock hasn't breached that strike since April 2013. As such, delta on the newly bought puts is just negative 0.33, or roughly 1-in-3 -- slightly better than the negative 0.27 delta on the January contract.