April 15, 2024
AMD Stock

In addition to a sizable call option tranche, a sizable number of in-the-money put options have been traded on Advanced Micro Devices Inc. (AMD) stock today. This might be the result of bullish investors hedging their AMD stock bets.

Alternatively, it might be the result of pessimistic investors who feel that Advanced Micro Device stock is about to plunge because it is at a peak.

You can view this action in the December 13th of the Unusual Stock Options Activity Report from Barchart. They show that a significant number of these trades have had high volume. At each tranche is strike price, they are 42–63 times more than the previous number of outstanding option contracts.

For instance, at the $138 strike price, more than 22,400 put contracts were traded. Given that the share price of Advanced Micro Device stock is currently $137.19, these contracts are already in the money (ITM). In other words, the buyer of these puts will anticipate that they will be exercised.

Given that each put was priced at $2.37, the breakeven threshold is $138 – $2.37, or $135.63. Therefore, AMD stock must drop an additional $1.56 before breaking even for the put option buyers of these contracts to profit.

It is possible that a sizable percentage of those purchasing AMD put options are already AMD stock holders. They might be taking a risk in case AMD stock drops even more.

Take note that every put contract in the table above is an ITM contract. That may also mean that a large number of put buyers have a negative outlook on the stock, at least initially.

The fact that AMD stock has recently increased and seems to be at a peak price could be one explanation for this. This can be seen in the Barchart chart below.

The data indicates that AMD’s stock has increased following a recent low of $93.66 on October 26. It has increased by more than 46% in the last 1.5 months. This implies that a lot of traders might think that the stock will eventually cool, if not permanently. That could also be the cause of the large number of put contracts that are traded at the moment, particularly those that are in the money.

What, then, is happening with AMD that could be the cause of this increase? Can it be sustained?

In Q3, Advance Micro Device Stock Produces Significant Free Cash Flow

In Q3, Advanced Micro Devices generated substantial revenue and profits. On a year-over-year basis, revenue climbed by 4% and 8% respectively. Furthermore, its earnings per share were eighteen cents, compared to two cents this quarter and four cents a year ago.

Furthermore, the business reported $297 million in free cash flow (FCF) for the quarter. That equates to 5.1% of its $5.8 billion in Q3 revenue.

The bottom line here is that investors might want to be careful with AMD stock. The huge volume in its near-term put options could bring additional pressure on a drop in the stock in the near term.

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