Shares of chipmaker
Advanced Micro Devices (AMD) have been more volatile than the overall market in recent months. One trader sees shares moving higher in the next upswing in the market.
That’s based on the March 11 $127 calls. With 7 days until expiration, 7,830 contracts traded compared to a prior open interest of 599, for a 13-fold jump in volume. The buyer of the calls paid $0.46 to make the trade.
Shares recently traded around $114, so they would need to rally about $13, or about 11 percent, for the option to move in-the-money. Given the daily volatility in shares, a move like that is possible, but not much further.
The chipmaker has gained about 52 percent in the past year, more than triple the return of the S&P 500. Revenues are up nearly 50 percent as well, but overall earnings growth has slid 45 percent in the past year.
Action to take: AMD is one of the leading chipmakers, and buying an industry dominator well off its high of $164 and under 30 times forward earnings looks like one of the best valuations in over a year. As a growth play, shares do not pay a dividend.
Traders may like next week’s call option, if they expect markets to rally. With the uncertainty in the markets, traders might want to wait until Monday in case there’s any negative news over the weekend, although any positive news could send shares soaring.
For the cost, it’s worth a small gamble, with the expectation for either a total loss on the trade or mid double-digit returns from here.
Disclosure: The author of this article has no position in the company mentioned here, but may trade after the next 72 hours. The author receives no compensation from any of the companies mentioned in this article.