Advanced Micro Devices Options Trading Picks Up Amid NVIDIA Sell-Off

Advanced Micro Devices (AMD) put options are popular, even as the semiconductor stock gains on NVDA's decline

Feb 23, 2017 at 2:33 PM
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As NVIDIA Corporation (NASDAQ:NVDA) stock sells off on the heels of two big downgrades, options on rival Advanced Micro Devices, Inc. (NASDAQ:AMD) are trading at an accelerated rate. Put volume is running in the 99th annual percentile, and at two times the normal rate -- though calls are also popular. The most traded option is the April 14 put, with more than 13,500 contracts exchanged. Data from the International Securities Exchange (ISE) confirms some buy-to-open activity here, which would mean traders are betting on AMD shares moving below $14 before the puts expire at the close on Friday, April 21. 

Looking back, call buying has been the more popular strategy among AMD options traders. The stock's 10-day call/put volume ratio at the ISE, Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) is 2.85, showing almost three calls have been purchased for every put during the past two weeks.

Much of this activity took place at the April 14 call, which is now home to peak open interest of nearly 55,000 contracts. But considering short interest is elevated on AMD, it's always possible these bears are hedging with calls -- especially at out-of-the-money strikes. 

In any case, front-month AMD options seem cheap, from a volatility standpoint. The shares have a Schaeffer's Volatility Index (SVI) of 53%, which ranks below 91% of the past year's readings. Add this to the stock's extreme Schaeffer's Volatility Scorecard (SVS) of 100 -- showing the options market has underpriced the stock's ability to make big moves over the last 52 weeks -- and it seems like a good time to speculate on Advanced Micro Devices. 

Today notwithstanding, the chip stock has rallied alongside NVDA during the past year, going from a perch near $2 a year ago to trade at $14.41 today -- not far from the shares' nine-year high of $14.50, touched yesterday. Now, Advanced Micro Devices, Inc. (NASDAQ:AMD) is looking up at the $15 region, which represents a 50% gain from its 2010 highs. Meanwhile, BofA-Merrill Lynch today raised its price target to $16.50 from $14 -- territory last visited in early 2007 -- though Deutsche Bank expressed caution related to the upcoming launch of AMD's Ryzen processor.

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