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Huge call spread takes aim at AMD

David Russell (david.russell@optionmonster.com)

A huge trade is looking for Advanced Micro Devices to rally back toward the 52-week high.

optionMONSTER's Heat Seeker monitoring system detected the purchase of 20,000 November 4 calls for $0.21 and the sale of an equal number of November 4.50 calls for $0.09. Volume was more than 6 times the previous open interest at each strike, indicating that new positions were initiated.

The trader now has the right to buy the semiconductor stock for $4 and must then sell it for $4.50 if shares are above that level on expiration. He or she paid $0.12 to control that $0.50 spread, implying a profit of 317 percent if the top of that range is reached by expiration. (See our Education section)

AMD rose 3.84 percent to $3.79 yesterday. It peaked at $4.65 in July but has been drifting lower since. The vertical spread lets the investor cheaply position for a rally, minimizing the amount of capital at risk if it doesn't move or falls.

Two near-term events could serve as catalysts. The first comes on Tuesday afternoon, when rival Intel reports earnings. AMD follows with its quarterly results on Oct 17.

Total option volume in the name was quadruple the daily average, according to the Heat Seeker. Overall calls outnumbered puts by a bullish 32-to-1 ratio.

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