What’s Been Happening with AMD Stock and Implied Volatility?
AMD, the tech giant, today experienced a dip of -2.7% in its stock price and has entered a technical bearish crossover. Alongside this, implied volatility in AMD’s options has been on an upward trend, surpassing its moving averages. With these factors in mind, our goal was to identify an option setup that could capitalize on these trends.
The Option Spread Opportuntiy We Detected
In light of these trends,, we turned to the Market Chameleon Opportunity Alerts. The system pinpointed the following calendar spread for two primary reasons: first, the strategy was poised to profit from the ongoing trends, and second, the trade conditions exhibited a favorable risk-to-reward ratio.
Marketchameleon Opportuntiy Alerts
- Sell 17-Nov-23 95 Put
- Buy 01-Dec-23 95 Put
The primary objective of this strategy is for AMD’s stock to continue drifting down to the 95 strike price and implied volatility to go higher. Ideally, we want the 17-Nov put to expire worthless at expiration, while the remaining 01-Dec option to appreciate due to an increase in implied volatility.
What We Liked About This AMD Option Spread
- Valuation: The current price of the spread, as of this writing, stands at 0.78 cents debit. Our extensive historical database indicates that, on average, this spread is valued at 0.95 cents, implying a market discount of -18%.
- High Potential Return: We ran scenarios for this spread, considering a $95 stock price at the 17-Nov expiration and an implied volatility reversion to its median level for the 01-Dec options. The potential return? An impressive +331%, underscoring its appealing ROI prospects.
- Defined Risk: The calendar spread comes with a defined risk, limited to the cost of the spread itself, assuming there are no exercise or assignment events.
Wrapping it Up
In conclusion, the AMD calendar spread offers a compelling way to play the current stock and implied volatility trends. It comes with limited risk, the potential for a high reward, and an enticing price point. As always, remember that the stock market is dynamic, and past performance is not indicative of future results. Make informed decisions and strategize wisely.
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Originally Posted October 18, 2023 – Why We Like This AMD Nov-Dec Option Spread
Disclaimer:
The content provided in this article is for informational purposes only and should not be considered as financial or investment advice. Trading options and engaging in financial markets involve risks, and past performance is not indicative of future results. Always conduct thorough research and consult with a qualified financial advisor or professional before making any investment decisions. The author and the platform do not assume any responsibility for financial losses or investment outcomes resulting from the use of the information presented herein.
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Options involve risk and are not suitable for all investors. Multiple leg strategies, including spreads, will incur multiple commission charges. For more information read the "Characteristics and Risks of Standardized Options" also known as the options disclosure document (ODD) or visit ibkr.com/occ
Problem is, you will have seasonality against you.