Shares of Advanced Micro Devices, Inc. (NASDAQ:AMD) are trading up 2.5% at $12.27, after J.P. Morgan Securities waxed optimistic on the chip stock ahead of CoinDesk’s Consensus 2018 blockchain conference. The brokerage firm said it liked “the risk-reward of owning upside in AMD,” given its historically bullish returns following the annual event, and that a move higher could spark a short squeeze — and options traders going along for the ride.
At last check, roughly 120,000 calls are on the tape — 1.2 times what’s typically seen — compared to fewer than 38,000 puts. While J.P. Morgan recommended buying the June 13 call to bet on a bigger AMD breakout, the October 14 call is most active, with 23,815 contracts exchanged.
Diving deeper, it appears new positions are being purchased here for a volume-weighted average price (VWAP) of $0.85, making breakeven for the call buyers at October expiration $14.85 (strike plus premium paid). It would take a more than 21% rally for AMD to conquer this level from its current perch.
While it’s possible some of this activity is of “vanilla” options bulls, it’s also likely short sellers are initiating an options hedge against any additional upside risk. The 179.44 million AMD shares sold short accounts for a hefty 21.7% of the stock’s available float, or three times its average daily pace of trading.
Regardless of the reason, now’s a prime time to buy premium on short-term AMD options. The stock’s Schaeffer’s Volatility Index (SVI) of 38% ranks in the 2nd annual percentile, meaning low volatility expectations are being priced into near-term contracts.
Looking at the charts, Advanced Micro Devices stock has been barreling higher since hitting an annual low of $9.04 in early April. The shares just wrapped up their longest weekly win streak since mid-2016 — gaining for five straight — and today’s push higher has AMD on track to close north of its 320-day moving average for the first time since early March.