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Posted August 12, 2020 at 10:40 am
Semiconductor stocks have performed well in 2020. However, Advanced Micro Devices, Inc. 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 INTC.
On Tuesday, large option traders were making some huge bets that AMD’s 90% rally off the March lows is far from over.
On Tuesday, Benzinga Pro subscribers received 28 option alerts related to unusually large trades of AMD options. Here are a handful of the largest:
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.
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 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.
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.
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Originally Posted on August 11, 2020 – Unusually Large AMD Option Trades Suggest Stock Could Be Headed Even Higher
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