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AMD Options Traders Betting on 16% Stock Decline By Michael J. Kramer | May 4, 2018 — 6:00 AM EDT
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(Note: The author of this fundamental analysis is a financial writer and portfolio manager.)
Advanced Micro Devices, Inc. (AMD) stock has risen sharply over the past month, by nearly 15% versus the S&P 500 rise of only 2%. Options traders are betting AMD's sharp advance won't last and will give back all of those gains, and fall by 16%, from its current price around $10.90. Analysis of the technical chart also sees shares of AMD falling as well. (For more, see also: Why AMD's Soaring Stock May See a Sharp Pullback.)
AMD's stock surged following blow out quarterly results that topped analyst revenue and earnings forecast with ease. The company reported revenue that was more than 5% better than estimates at $1.646 billion, while beating earnings estimates by nearly 26% at $0.11 per share.
AMD Chart
AMD data by YCharts
Bearish Options
The options set to expire on July 20 suggests that shares of AMD could rise or fall by as much 14% from the $10 strike price by expiration. The cost to buy one put and one call are $1.58, placing the stock in a trading range between $9.42 to $12.58. The number of puts at the strike heavily outweigh the calls, by a ratio of nearly five to one, with 85,300 open puts contracts to just 17,700 open call contracts. The dollar value of the put contracts is about $6.6 million.
The options expiring on October are just as bearish, at the $10 strike price, with nearly 47,000 open put contracts, to only 19,000 open call contracts. The puts cost roughly $0.80 per contract and have a breakeven price of $9.20, a drop of 16% from its current stock price.
Bearish Technicals
The technical chart also sees the stock falling, with a downtrend firmly in place since late January, and a gap that needs to be filled following the latest round of earnings. Should the gap be filled, the stock would need to fall to roughly $10, a drop of about 9%. (For more, see also: AMD Buyers in Charge After Months of Weak Action.)
Upping Estimates
Analysts have a more positive outlook for the stock and see shares rising by nearly 26% to an average price target of $13.80. Since beating results, analysts have upped their revenue outlook for the company by over 9% to $1.718 billion, and earnings by over 1% to $0.13 per share. Full year estimates have also climbed, boosting revenue forecast by over 6% to $6.681 billion, and earnings by 23% to $0.45 per share.
AMD Revenue Estimates for Current Fiscal Year Chart
AMD Revenue Estimates for Current Fiscal Year data by YCharts
Options traders appear to be betting the recent strong earnings results will not last, and that likely means shares move lower.
Michael Kramer is the Founder of Mott Capital Management LLC, a registered investment adviser, and the founder of the company's actively managed, long-only Thematic Growth Portfolio. Kramer typically buys and holds stocks for a duration of two to three years. Click here for Kramer's bio and his portfolio's holdings. Information presented is for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any specific securities, investments, or investment strategies. Investments involve risk and unless otherwise stated, are not guaranteed. Be sure to first consult with a qualified financial adviser and/or tax professional before implementing any strategy discussed herein.Upon request, the advisor will provide a list of all recommendation made during the past twelve months. Past performance is not indicative of future performance.
Read more: AMD Options Traders Betting on 16% Stock Decline | Investopedia https://www.investopedia.com/news/amd-options-traders-betting-16-stock-decline/#ixzz5Sh6c9hc2
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