Advanced Micro Devices, Inc. (NASDAQ: AMD) continues to gain market share from competitor Intel Corporation (NASDAQ: INTC), and its share price is marching to new highs.
A flurry of large AMD option trades were mostly bullish on Monday as investors hope a massive gaming upgrade cycle will push the stock to the triple digits for the first time.
The AMD Trades: On Monday morning, Benzinga Pro subscribers received several option alerts related to unusually large trades of AMD Airlines options. Here are a handful of the biggest:
- At 9:35 a.m., a trader sold 300 AMD call options with a $90 strike price expiring in January 2022 at the bid price of $90. The trade represented a $636,000 bearish bet.
- At 10:49 a.m., a trader bought 995 AMD call options with an $80 strike price expiring on Jan. 15 near the ask price at $13.901. The trade represented a more than $1.38-million bullish bet.
- At 11:23 a.m., a trader bought 338 AMD call options with an $85 strike price expiring on Mar. 19 near the aks price at $14.20. The trade represented a $479,960 bullish bet.
- At 11:46 a.m, a trader sold 1,000 AMD put options with a $90 strike price expiring on Feb. 19 at the bid price of $6.85. The trade represented a $685,000 bullish bet.
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 the largest AMD trades, they could potentially represent an institutional hedge.
Big Finish To 2020? On Monday, Bank of America analyst Vivek Arya said AMD continues to gain CPU market share from Intel among Steam gamers.
In October, AMD revealed three new Radeon RX 6000 Series graphics cards, collectively referred to as “Big Navi.”
These new GPUs are based on the same RDNA2 architecture found in the new gaming consoles recently released by Microsoft Corporation (NASDAQ: MSFT) and Sony Corp (NYSE: SNE).
Arya said the latest AMD Radeon cards will support hardware-accelerated ray tracing and will compete with the latest NVIDIA Corporation (NASDAQ NVDA) RTX 3000 Series in 4K and 1440p PC gaming.
Arya said the console-driven gaming upgrade cycle is certainly bullish for both AMD and Nvidia, but it’s not the primary driver of his bullish thesis for AMD.
“Any gaming success would be incremental to our main Buy thesis on AMD, namely its ability to gain share in key PC/server CPU markets which should be the biggest driver of best-in-class 20% sales CAGR,” the BofA analyst recently said.
Even after more than doubling year-to-date, Bank of America’s $110 price target suggests significant further upside for AMD shares.
Benzinga’s Take: The big $1.3-million January AMD call purchase on Monday has a break-even price of just $93.90, suggesting the stock will be profitable if AMD makes any significant gains from its $93.69 price in midday trading.
It’s important to note that the Jan. 15 expiration date will likely come before AMD reports fourth-quarter earnings numbers, so it may be more of a play on continued near-term bullish semiconductor stock momentum than a bet on a big earnings beat from AMD.