Put option buying bets on decline.
The October 4th $26 put options on Advanced Micro Devices (AMD) saw over 10,400 contracts trading—a 41-fold increase over the prior open interest of 250 contracts. With 28 days left to go and with shares around $32, the bet is that shares will decline nearly 19 percent.
At just $0.15 for the option, or $15 for the full contract, the trade may simply be a hedge following the strong rally this week on the announcement of new trade talks.
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Advanced Micro Devices is an industry-leading name in the semiconductor space with computing and graphics processing technologies. Shares are up 9 percent in the past year and trade at 30 times forward earnings. The company next reports earnings in late October, after these October 4th options expire.
Action to take: The company is a volatile one, but is well positioned to benefit from a permanent resolution to trade issues. While valuation is a bit high, it’s not high enough to see the kind of pullback suggested by this option trade, at least before earnings.
Speculators betting on a pullback in shares would be better off with a January 2020 $25 call. While more expensive a trade at $1.12 or $112 per contract, it could offer a better return if the company misses on earnings and sees shares drop in late October.