Why Are Call Buyers Flocking to Advanced Micro Devices, Inc. (AMD)?

Call buyers have been piling into Advanced Micro Devices, Inc.'s (NASDAQ:AMD) options pits

Dec 31, 2015 at 11:01 AM
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Bullish betting on semiconductor stock Advanced Micro Devices, Inc. (NASDAQ:AMD) has been in vogue in recent weeks. In fact, traders have bought to open more than 12 calls for every put at the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) over the past 10 sessions. The resulting call/put volume ratio of 12.13 outranks 75% of readings from the past year, which tells us that call buying has been more popular than usual. 

The stock's Schaeffer's put/call open interest ratio (SOIR) also reflects this unusual preference for calls. Specifically, at 1.00, this reading is lower than all but 7% of marks from the past year. Said simply, short-term speculators have taken an increasingly call-focused approach. 

Nothing's changed today, as AMD calls are crossing at a slightly accelerated pace. What's more, nearly 5,000 calls have crossed compared to just 42 puts. A large portion of this activity has taken place at the July 3.50 call, with signs pointing to buy-to-open activity. On the surface, these traders are hoping for AMD to move above $3.50 before July expiration. Looking back, the stock hasn't traded above $3.50 since September 2014. 

However, there could be more to this call buying than meets the eye, since over 116 million AMD shares are sold short. At average daily volumes, it would take short sellers almost three weeks to cover their positions. As such, there's a chance bears have been purchasing calls to protect against an upside move in the semiconductor stock, especially with the company's earnings report less than a month away. 

Technically speaking, it's been an up-and-down year for AMD. The shares struggled during the summer months, but have rallied over 70% during the fourth quarter. However, this surge has resulted in a 14-day Relative Strength Index (RSI) of 76, suggesting the stock is overbought. This could be why Advanced Micro Devices, Inc. (NASDAQ:AMD) is 1.3% lower today at $2.94.

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