Advanced Micro Devices Stock Is a Strong Buy After Earnings
Semiconductor stocks have cooled in recent months. At least that’s the story told by the Market Vectors Semiconductor ETF (NYSEARCA:SMH). But not all constituents are being mired in the mud. Sure, Nvidia (NASDAQ:NVDA) and Micron Technology (NASDAQ:MU) are meandering, but look at Advanced Micro Devices (NASDAQ:AMD). Fueled by an earnings blowout, AMD stock just tagged a new 11-year high.
Even better, the shares are providing a post-earnings pullback for spectators looking to buy-in on the cheap. Let’s identify the price thresholds that matter and offer up a trade idea for how to capitalize.
The humble beginnings of AMD’s bull market are easy to forget now that it has achieved rockstar status. It was only two years ago that AMD stock was dithering in the $2 range. Two breakouts in recent months mark its progress. First, the breach of $14 finally launched AMD from a year-long base. As is often the case with base breakouts, this signaled the stock was ready for the next phase of its uptrend.
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Source: OptionsAnalytix
The second breakout was last week’s jump over $17 following the earnings release.
AMD stock had formed a bullish cup-and-handle formation heading into last week’s quarterly report. The rosy numbers were all the excuse buyers needed to sally forth and complete the pattern. Traders wondering if the breakout was legit need look no further than the monster volume that accompanied the surge. It increases the likelihood that pullbacks — like that seen right now — will be bought.
I fully expect this dip to form a higher pivot low. Old resistance near $17 should prove particularly formidable if retested in the coming days.
Source: OptionsAnalytix
A High Odds AMD Stock Option Trade
The low price tag of AMD makes it a particularly attractive candidate for selling puts. The margin requirement is minimal, which translates into an attractive return on investment. If you’re willing to wager the stock sits above $16 at September expiration, then sell the Sep $16 put for 31 cents. The max reward of $31 will be captured if the puts expire out-of-the-money.
The initial margin required should be around $150, which means the trade offers a mouth-watering 20% return.
By selling puts, you are obligating yourself to buy shares of AMD at an effective purchase price of $15.69. You can sidestep assignment by closing the trade near expiration if the puts move into the money.
As of this writing, Tyler Craig didn’t hold positions in any of the aforementioned securities. Want more education on how to trade? Check out his trading blog, Tales of a Technician.
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