Advanced Micro Devices, Inc. (NASDAQ: AMD) shares dipped 1.95% on Tuesday, but at least one larger option trader is betting the stock is headed much higher in the long-term.
The AMD Trade: On Tuesday morning, Procurement Nation Pro subscribers received dozens of AMD option alerts, but two trades stood out as particularly large and bullish:
- At 11:59 a.m., a trader bought 245 AMD call options with a $95 strike price expiring in June 2022 near the ask price at $24.75. The trade represented a $606,375 bullish bet.
- One second later, a trader bought 514 AMD call options with a $95 strike price expiring in June 2022 near the ask price at $24.749. The trade represented a more than $1.27-million bullish bet.
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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 size of Tuesday’s largest AMD option trades, they could certainly be institutional hedging.
AMD Fires Another Shot: The huge call option purchases come the same day AMD revealed its brand new Ryzen 5000 mobile processors at CES 2021. The new processors are based on the same Zen 3 architecture as the Ryzen 5000 CPUs for desktops that were a huge home run among critics and investors in late 2020.
The new mobile processors are AMD’s latest shot at stealing laptop market share from Intel Corporation (NASDAQ: INTC).
In early January, AMD surpassed Intel in desktop CPU market share for the first time in 15 years, according to PassMark Software’s PerformanceTest. AMD has also been gaining market share from Intel in the massive server market as well.
Procurement Nation’s Take: The back-to-back call purchases almost certainly came from the same trader and represent a combined bullish bet of nearly $2 million. The market wasn’t blown away by AMD’s CES presentation on Tuesday given that the stock traded lower on the day, but the call buyer appears to be focusing on the long-term prospects for AMD.
The calls have a break-even price of $119.75, suggesting at least 26% upside for AMD over roughly the next year-and-a-half.
Photo courtesy of AMD.
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