AMD – Advanced Micro Devices, Inc. – The purchase of a debit put spread on semiconductor manufacturer, Advanced Micro Devices, Inc., today is perhaps the work of an investor bracing for limited erosion in the price of the underlying shares through July expiration. AMD’s shares are up 3.7% to $8.42 as of 12:25 pm (ET). It looks like the options trader purchased 6,000 in-the-money puts at the July $9.0 strike for an average premium of $0.99 apiece, and sold the same number of puts at the lower July $8.0 strike for an average premium of $0.41 each. The net cost of the spread amounts to $0.58 per contract. The transaction was perhaps initiated by an investor who is currently long the stock and seeking downside protection should AMD’s shares decline ahead of expiration next month. If this is the case, downside protection kicks in if shares of the underlying stock trade below the effective breakeven price of $8.42 by July expiration. Alternatively, the trader responsible for the spread may hold no underlying position, and is rather enacting an outright bearish bet on the stock. In this scenario, the investor stands prepared to amass maximum potential profits of $0.42 per contract should AMD’s shares fall 11.28% from the current price to trade below $8.00 by July expiration day.
Affiliation: Interactive Brokers
Andrew Wilkinson is the senior market analyst at Interactive Brokers Group, where he provides daily commentary and analysis on U.S. equity options trading throughout the trading day. Andrew provides webinars designed to explain option-related trading scenarios covering futures, fixed income, forex and equities.
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