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AMD Traders Bet Stock Will Jump 11% Short Term By Michael J. Kramer | June 27, 2018 — 2:00 PM EDT
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(Note: The author of this fundamental analysis is a financial writer and portfolio manager.)
Shares of Advanced Micro Devices Inc. (AMD) have been on a wild ride, falling to a 2018 low by April and rebounding to rise 50 percent year to date. Now, options traders are betting the price of AMD will gain 11 percent short term. Their bullish trades come ahead of the company's second-quarter results at the end of July.
Bullish Bets
The long straddle options strategy due to expire on August 17 implies a rise or fall of about 17.5 percent from the $16 strike price, placing the stock in a trading range of $13.21 to $18.80. The number of calls heavily outweighs the puts by a ratio of nearly 3 to 1, indicating that the majority of traders are betting that AMD shares will surge short term.
With the $16 calls trading at roughly $1.10 per contract, a buyer would need the stock price to rise by 11.5 percent to $17.10. The number of open contracts for the $16 calls also has been steadily increasing since the start of June.
Strong Growth
One reason traders may be bullish is expectations for significant growth in the second quarter at AMD. Analysts are looking for earnings to rise by more than six-fold compared to last year. Revenue is expected to jump nearly 41 percent. Analysts' full-year outlook also is robust with earnings expected to nearly triple on strong revenue growth.
AMD EPS Estimates for Current Fiscal Year Chart
AMD EPS Estimates for Current Fiscal Year data by YCharts
Option traders' optimism runs counter to technical charts that show the stock could fall about 10 percent short term.
AMD Chart
AMD data by YCharts
Weak Chart
Technical analysis shows the stock failed to rise above a key resistance level at $15.60. Additionally, the relative strength index is trending lower after hitting overbought levels, also suggesting the shares may drop.
This means AMD's stock must surmount a number of hurdles before options traders enjoy the big gains they're anticipating.
Michael Kramer is the Founder of Mott Capital Management LLC, a registered investment adviser, and the manager of the company's actively managed, long-only Thematic Growth Portfolio. Kramer typically buys and holds stocks for a duration of three to five 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 recommendations made during the past twelve months. Past performance is not indicative of future performance.
Read more: AMD Traders Bet Stock Will Jump 11% Short Term | Investopedia https://www.investopedia.com/news/amd-traders-bet-stock-will-jump-11-short-term/#ixzz5Sh3yNDHc
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