Shares of semiconductor company Advanced Micro Devices (AMD) have lost more than half their value in the past year. One trader sees a rebound in the months ahead.
That’s based on the March 2023 $55 calls. With 133 days until expiration, 20,093 contracts traded compared to a prior open interest of 541, for a 37-fold rise in volume on the trade. The buyer of the calls paid $10.63 to make the trade.
The stock last traded just over $68.50, meaning the options are already about $3.50 in-the-money. The $55 strike price is near the stock’s 52-week low. On a rebound, shares may move to $80, but it’s unlikely they’ll get back to the 52-week high of $164 anytime soon.
The company is coming off a mixed year, with revenues up 70 percent but overall earnings down 27 percent. It’s likely AMD will see a big decline in revenue growth given the slowing computer chip space.
Action to take: Investors could consider shares here, as the stock is reasonably valued at 15 times forward earnings. Buying small and adding on further drops would be the name of the game for the next few months.
For traders, the options could fare well. Already in-the-money, they’re unlikely to deliver more than high double-digit gains on a rebound in the coming months. But they’re also less likely to lose all of their value at expiration.
Traders should look to buy the calls on a down day and potentially flip them more quickly for smaller gains.
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.