Trader bets on 70 percent rally by July.
July $85 call options on Advanced Micro Devices (AMD) saw a 30-fold surge in volume, going from 100 open contracts to about 3,000.
The trade, expiring in 170 days, indicates a 70 percent move higher for shares, based on their current price near $50.
The buyer of these options also paid about $0.60, or $60 per contract, so the trader may just be betting on the company before it reported earnings after the market close on January 28th.
Shares of the chipmaker have had a monster year with a 144 percent gain already. The company is starting to see the latest generation of chips impact its bottom line, so shares trade at 44 times forward earnings and sport a low profit margin.
Action to take: The current uptrend in shares is likely to continue, albeit at a slower pace than this options trade would suggest. We like the July trade, but as shares are unlikely to hit the strike price of $80, they’re worth holding for a quick profit and turnaround, especially if shares drop following their earnings report.
A better options trade would be the July 2020 $60 calls, which are more expensive but likely to move in-the-money if the current uptrend continues.
Given the long-term trends benefiting the company right now, shares look attractive as a multi-year holding. Although the company doesn’t pay a dividend, investors could still get market-beating returns buying shares up to $52.00.