Unusual Options Activity: Advanced Micro Devices (AMD)

Big bet on continued decline through September.

On Wednesday, shares of Advanced Micro Devices (AMD) dropped following decent, but lackluster earnings. Some traders saw further weakness, as evidenced by a number of bearish options trades following the earnings report.

One particularly active option was the September 20th $26.00 put options, expiring about 50 days away. The option saw over 3,100 contracts trade against a prior interest of 174, for a nearly 18-fold increase in volume.

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  • With AMD shares knocked down to $31.15 in trading, the $26 strike price implies a further move lower in shares of at least 17 percent between now and September for the option to trade in-the-money.

    As a key supplier of computing technology, AMD is also a big mover on any trade war fears, making shares particularly volatile.

    Action to take: While we like the company for the long haul, at $0.28, or $28 per contract, this is a cheap way to bet on a volatile stock having further weakness in the coming weeks.

    The option could end up providing a short-term, short-side profit and looks like a nice hedge right now. We would suggest buying under $0.30, and with an eye towards taking a 30-40 percent profit in the option as quickly as possible before the time premium eats away at the option’s remaining value. The trick to profiting from out-of-the-money put option trades is to not get greedy.