Buy Calls on This Outperforming Chip Stock

AMD has been an attractive target for premium buyers

Feb 20, 2019 at 1:45 PM
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Advanced Micro Devices (NASDSAQ:AMD) rose nearly 3% last week after the Wall Street Journal reported China could boost its U.S. semiconductor purchases over the next six years as part of broader trade negotiations between the two countries. This positive price action is just more of the same for AMD, though, with the stock up 28% year-to-date and 94% year-over-year.

amd weekly chart feb 15

A shift in sentiment could fuel more upside for the chip stock. In the options pits, AMD's 50-day put/call volume ratio at the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) ranks in the 83rd annual percentile, meaning puts have been bought to open over calls at a quicker-than-usual clip.

And while short interest declined 8% in the two most recent reporting periods -- suggesting shorts are in cover-mode -- there are still 119.78 million AMD shares sold short, accounting for 12.7% of the stock's available float. A capitulation from some of the weaker bearish hands could create tailwinds for the equity.

There's room for upgrades to draw buyers to the table, too. In spite of the security's impressive gains, 11 of 20 analysts maintain a "hold" or "strong sell" rating on AMD.

Lastly, the stock has been an attractive target for premium buyers over the last 12 months, according to its Schaeffer's Volatility Scorecard (SVS) of 99 (out of a possible 100). In other words, AMD has tended to make outsized moves, relative to what the options market has priced in.

Subscribers to Schaeffer's Weekend Trader options recommendation service received this AMD commentary on Sunday night, along with a detailed options trade recommendation -- including complete entry and exit parameters. Learn more about why Weekend Trader is one of our most popular options trading services.


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