AMD Option Traders Turn Bullish Following Second Analyst Target Hike

Shares of Advanced Micro Devices, Inc. AMD are up more than 3% on Monday following yet another price target hike. Some large option traders are making some unusually large bullish bets that analysts are getting it right on AMD’s upside.

The Trades

On Monday, Benzinga Pro subscribers received 24 option alerts related to unusually large trades of AMD options. Here are some of the largest:

• At 10:14 a.m., a trader bought 702 AMD call options with an $35 strike price expiring on Jan. 17, 2020 near the ask price at $5.747. The trade represented an $403,439 bullish bet.
• Less than a minute later, potentially the same trader sold 798 of the same AMD call options with a $35 strike price expiring on Jan. 17, 2020 at the bid price of $5.76. The trade represented a $459.648 bearish bet.
• At 10:20 a.m., a trader bought 2,000 AMD call options with an $40 strike price expiring on Feb, 21, 2020 near the ask price at $3.901. The trade represented an $780,200 bullish bet.
• At 10:47 a.m., a trader sold 2,000 AMD call options with a $34 strike price expiring on Dec. 20 at the bid price of $6.06. The trade represented an $1.21 million bearish bet.

Of the 22 large AMD option trades on Monday, 15 were either calls purchased at or near the ask or puts sold at or near the bid, trades typically seen as bullish. Nine were calls sold at or near the bid, trades typically seen as bearish.

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 total number and timing of the trades coupled with the relatively large sizes of the largest trades by retain investor standards, it’s possible that at least some of Monday’s action was institutional hedging.

Clear Skies Ahead

Even with AMD trading at new all-time highs and up 114% year to date, analysts are still loving the chip maker. On Friday, RBC reiterated its Outperform rating for AMD and raised its price target from $44 to $50. RBC cited market share gains and improving data center product demand heading into 2020.

On Monday, Cowen also reiterated its Outperform rating for AMD and raised its price target from $40 to $47. Cowen mentioned long-term investor conviction in the stock and the track record of strong execution from AMD’s management teams as justification for the bullish outlook.

The price target hikes come after AMD reported mixed third-quarter earnings and fourth-quarter guidance last month, but the stock has rallied another 19.6% since the report.

Benzinga’s Take

The mixed trading on Monday suggests some option traders are either cashing in on AMD’s recent gains or hedging their bullish bets. However, the fact that there wasn’t a single unusually large put purchase on Monday suggests even the AMD skeptics aren’t being very aggressive following the latest bullish commentary from Wall Street.

Do you agree with this take? Email feedback@benzinga.com with your thoughts.

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