Advanced Micro Devices, Inc. (AMD) Stock Will Bludgeon the Bears

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If you want stability, Advanced Micro Devices, Inc. (NASDAQ:AMD) is not for you. But if you want the backing of a constructive price chart and potential analyst fuel, you also need look no further than AMD stock — and next week’s earnings report.

Advanced Micro Devices, Inc. (AMD) Stock Will Bludgeon the Bears
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If you’ve been waiting for confirmation to pick up Advanced Micro, there’s growing evidence (on and off the chart) that the time is now. You just have to get past AMD’s resident bear population.

As of this writing, analysts remain fairly negative on AMD’s prospects from here. Among 30 analysts, merely nine experts think shares are a buy, compared to 16 holds and five sells. And with AMD stock at $13.55, the median price target assumes a drop of 15%.

The latest analyst to chime in with concerns about Advanced Micro Devices was MKM analyst Ruben Roy, which is cautious on that stock while bullish about rival Intel Corporation (NASDAQ:INTC). Before that update, Barclays came out with a downgrade to AMD shares, to “Underweight,” and reduced the PT to a mere $9, which is below the consensus.

Maybe all that pent-up bearishness gets rewarded? I can’t say it can’t happen. But analysts have been caught flat-footed by a resurrected AMD stock, whose management has made impressive product moves and strides into growth markets.

There’s definitely room for upward revisions if Advanced Micro continues to execute.

Further, if we’re to believe charts can act as forward-looking pricing mechanisms, there’s increased reason to think AMD’s revival is just beginning.

Advanced Micro Devices’ Chart


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Source: Charts by TradingView

Overall, price action has been constructive following AMD’s two-month-long corrective double-bottom pattern of 35%.

Nearly five months removed from a Feb. 28 high of $15.55, AMD stock has reaffirmed the uptrend off May’s corrective low by establishing another higher low pivot and holding the 62% retracement level.

Looking forward, I’m optimistic that the overall price action from the February high is establishing a bullish corrective base ripe for a breakout. It should get help from next week’s earnings release.

Let’s look at the trade.

How to Trade AMD Stock

Given that I think Advanced Micro Devices is ready to pop to new highs from an increasingly constructive-looking base, and respecting that earnings with its associated risks is in the mix, I want to position with a modified, targeted long call butterfly.

One such spread that offers a nice blend of risk and reward is the 10 Aug $14.50/$16.50/$17.50 call combination. With AMD stock priced at $13.55, this butterfly will cost you 35 cents.

What does this spread offer?

First, if the base is put in technical jeopardy, the worst-case scenario is a loss of the debit — or about 2.5% of stock risk at expiration — if AMD remains below $14.50.

If AMD rallies, an expiration profit zone begins above $14.85. At $16.50, the trader maximizes the spread’s profit potential of $1.65. This is the result of the embedded bull call spread expanding to $2, the bear spread going out worthless and factoring in the initial 35-cent debit to enter into the butterfly.

Above $16.50, profits begin to decrease as the $16.50/$17.50 bear spread builds intrinsic value. However, as the vertical’s width is $1 compared to the $2-wide $14.50/$16.50 bull call spread. So if AMD stock explodes higher beyond our constrained optimism, you’ll still get to keep a 65-cent profit.

Investment accounts under Christopher Tyler’s management currently own positions in AMD stock and / or AMD derivatives, but no other securities mentioned in this article. The information offered is based upon Christopher Tyler’s observations and strictly intended for educational purposes only; the use of which is the responsibility of the individual. For additional market insights and related musings, follow Chris on Twitter @Options_CAT and StockTwits.

The information offered is based upon Christopher Tyler’s observations and strictly intended for educational purposes only; the use of which is the responsibility of the individual. For additional market insights and related musings, follow Chris on Twitter @Options_CAT and StockTwits.


Article printed from InvestorPlace Media, https://investorplace.com/2017/07/advanced-micro-devices-inc-amd-stock-will-bludgeon-the-bears/.

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