AMD Attracts Bearish Option Trade as Shares Dip Ahead of Earnings

$Advanced Micro Devices(AMD)$   attracted a bearish block trade in call options and heavy buying of contracts that can protect shareholders against a slump as the stock price declined a day ahead of the chipmaker's quarterly results due after the market closes May 5.

A buyer paid $2.99 million for put options that give their holder the right to sell 300,000 AMD shares at $345 a share by May 8. That strike price is more than $3 below the current stock price, signaling the buyer's concern that the AMD could extend its decline by the end of the week.  

The block trade was posted as the stock declined 4.6%, trimming this year's advance to about 61%. After the market closes on Tuesday, AMD is expected to report an almost 33% growth in revenue to $9.98 billion in the three months ended March 31, according to the average of estimates compiled by Bloomberg. Data center revenue is seen climbing to $5.61 billion, from $3.61 billion a year earlier. 

Last week, AMD's second biggest customer, $Meta Platforms (META.US)$ raised its 2026 capital expenditure forecast to a range of $125 billion to 145 billion, from its prior outlook of $115 billion to $135 billion, signaling to investors that the cost of developing advanced technology will be higher than previously expected. 

$Microsoft (MSFT.US)$, another big customer of AMD, said about two-thirds of its $31.9 billion in capital expenditures in fiscal third quarter was spent on short-live assets, primarily graphics processing units (GPUs) and central processing units (CPUs). Capex in the three months ended March 31 jumped 49% from a year ago, Microsoft said in its earnings results last week. 

Together with its two other big customers, $Amazon (AMZN.US)$ and $Alphabet-A (GOOGL.US)$, the hyperscalers are expected to boost spending to as high as $725 billion this year, helping sustain demand for GPUs, CPUs, and other semiconductors made by companies including AMD, that go into building AI data centers . 

A put could serve as an insurance against a continued share slump, or a bet that the stock will fall. On the other hand, selling a call is a bet it will not rise past a certain level. For regular investors, heavy put buying often signals that some traders are hedging against or speculating on a drop.

The options market was pricing in a big swing. Implied volatility, or IV, is the market's forecast of how much a stock could move and is a key input in option prices. For AMD, average implied volatility across strikes was at 71%. That reading ranked in the 95th percentile of the past year, meaning options were more expensive than they had been on 95% of trading days over the last 12 months, according to exchange data tracked.

Historical volatility, which measures how much the stock actually moved, was 63.3% over the same period. When implied volatility sits above historical volatility and near annual highs, it tells investors that traders expect larger-than-usual swings and are paying up for insurance.

But after the stock's 245% jump over the past year, HSBC analyst Frank Lee sees "limited upside opportunities" for AMD, that he downgraded the stock to hold from buy, according to a Bloomberg report. 

At current prices and volatility, a trade similar to the purchase of $345 put option cited above has a profit probability of less than 38%. The stock price will need to fall below the breakeven level of $330.55 before the contract expires on Friday for the buyer of those put options to make from that trade. 

If the stock price does decline below that level, the maximum profit potential could reach $33,055 per contract, which covers 100 shares. If AMD shares hold above that level and the contract expires worthless, the maximum loss potential could reach $1,445 per contract. 

@TigerStars  @CaptainTiger  @TigerWire  @Daily_Discussion  @Tiger_chat  @Tiger_comments  @MillionaireTiger