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Unusually Large AMD Option Trades Suggest Stock Could Be Headed Even Higher

Wayne Duggan

Semiconductor stocks have performed well in 2020. However, Advanced Micro Devices, Inc. (NASDAQ: AMD) has been one of the hottest stocks in the market due to its exposure to gaming and the repeated stumbles of top competitor Intel Corporation (NASDAQ: INTC).

On Tuesday, large option traders were making some huge bets that AMD’s 90% rally off the March lows is far from over.

The Trades: On Tuesday, Benzinga Pro subscribers received 28 option alerts related to unusually large trades of AMD options. Here are a handful of the largest:

  • At 9:39 a.m., a trader bought 334 AMD call options with a $85 strike price expiring on March 19, 2021 near the ask price at $12.68. The trade represented a $423,512 bullish bet.

  • At 10:39 a.m., a trader bought 500 AMD call options with a $55 strike price expiring on Oct. 16 at the ask price of $26. The trade represented a $1.3 million bullish bet.

  • At 10:47 a.m., a trader sold 373 AMD put options with an $80 strike price expiring on Jan. 15, 2021 near the bid price at $12.201. The trade represented a $455,097 bullish bet.

  • At 11:47 a.m., a trader bought 711 AMD call options with an $80 strike price expiring on Oct. 16 at the ask price of $7.39. The trade represented a $525,429 bullish bet.

Of the 28 total large AMD option trades on Tuesday morning, 21 were calls purchased at or near the ask or puts sold at or near the bid, trades typically seen as bullish. Seven trades represented calls sold at or near the bid or puts purchased at or near the ask, trades typically seen as bearish. The five largest trades of the morning were all bullish in nature.

Why It's Important: Even traders who stick exclusively to stocks often monitor option market activity closely for unusually large trades. Given the relative complexity of the options market, large options traders are typically considered to be more sophisticated than the average stock trader.

Many of these large options traders are wealthy individuals or institutions who may have unique information or theses related to the underlying stock.

Unfortunately, stock traders often use the options market to hedge against their larger stock positions, and there’s no surefire way to determine if an options trade is a standalone position or a hedge. In this case, given the relatively large sizes of the largest option trades, they could certainly represent institutional hedging.

AMD On The Path To $100? AMD reported 26% revenue growth in the second quarter, the same quarter Intel said it found a flaw in its 7-nanometer chip manufacturing process and may be forced to rely on third-party manufacturing. Intel has lagged AMD in GPU technology for the past several years, allowing AMD to eat into its leading market share.

On Monday, Jefferies reiterated its Buy rating for AMD and raised its price target from $95 to $135, suggesting another 69% upside from current levels.

“As it does, we think that the bull case for AMD, which is based largely on AMD capturing 30% share from INTC over the next 2-to-3 years, will morph to a 50% market share bull case 4-to-5 years out," analyst Mark Lipacis said.

  AMD Chart by TradingView new TradingView.widget( { "width": 680, "height": 423, "symbol": "NASDAQ:AMD", "interval": "D", "timezone": "Etc/UTC", "theme": "light", "style": "1", "locale": "en", "toolbar_bg": "#f1f3f6", "enable_publishing": false, "allow_symbol_change": true, "container_id": "tradingview_940f9" } );

Benzinga’s Take: Tuesday’s large option trading was heavily skewed to the bullish side, suggesting deep-pocketed traders are expecting more good news from AMD and potentially bad news from Intel in the coming months. The $1.3 million call purchase has a break-even price of $81, suggesting at least 2.5% upside for the stock over the next two months.

Related Links:

UPS Option Trader Bets M The Stock's Huge Rally Isn't Over

How To Read And Trade An Option Alert

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© 2020 Benzinga.com. Benzinga does not provide investment advice. All rights reserved.