AMD Options Bulls Bet On a Quick Bounce

Analysts, on the other hand, have been slow to catch up to AMD's price action

by Karee Venema

Published on Oct 2, 2018 at 11:09 AM

Bullish options traders have blasted Advanced Micro Devices, Inc. (NASDAQ:AMD) in recent weeks, and it's no surprise why. The shares have nearly tripled year-to-date, and a recent pullback from their mid-September 12-year peak of $34.14 is stalling out near the round $30 mark -- an area of congestion ahead of AMD stock's breakout last month, last seen at $30.38.

amd stock daily price chart on oct 2

Meanwhile, at the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), speculative players have bought to open 293,099 calls over the last 10 days, compared to 138,460 puts. Echoing this is AMD's gamma-weighted Schaeffer's put/call open interest ratio (SOIR) of 0.71, which shows near-the-money calls outweigh puts among options set to expire in three months or less.

On Monday, AMD calls outpaced puts by a more than 2-to-1 margin. The weekly 10/5 33-strike call was most active, and it looks like new positions were likely purchased for a volume-weighted average price of $0.34. If this is the case, breakeven for the call buyers at this Friday's close -- when the weekly options expire -- is $33.34 (strike plus premium paid).

Outside of the options pits, the optimism toward Advanced Micro Devices stock is less evident. Of the 23 analysts covering the shares, 11 still maintain a "hold" or "strong sell" rating. Plus, the average 12-month price target of $25.67 is a 15% discount to current trading levels. This leaves the door open for upgrades and/or AMD price-target hikes to draw more buyers to the table.

Plus, short sellers may be encouraged to cover, should AMD shares resume their longer-term uptrend. Short interest rose nearly 4% in the most recent reporting period to 151.9 million shares -- representing a significant 16% of the chip stock's available float.

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