Unclear Implications for Advanced Micro Devices

There’s no want of potential catalysts to explain the more than 5-fold intraday increase in option trading volume in Advanced Micro Devices on our platform today, making it the single-biggest relative volume gainer as of the noon hour.

An 11.5% gain for its shares to $7.28 comes two days before its annual shareholders’ meeting, one day after expanding its laundry list of antitrust grievances against arch-rival Intel (INTC), and hot on the heels of an industry report claiming a 3.8% increase in global chip sales during the first quarter of the year.

What’s a little more surprising is the relative imperviousness of AMD’s implied volatility, which at 46% has barely budged on the news. A closer look at today’s active trading volume revealed calls outtrading puts by 4 to 1, a proportion that on the surface of things might imply real validation that the end of AMD’s share price tribulations is high. But while the July contract did indeed show a sizable overweight of calls bought at strikes 7, 8 and 9, we saw a huge, near 23,000-lot glut of volume – far outweighing the existing open interest - in January ’09 calls at the $7.50 strike, trading mostly to sellers for $1.30 today. Another 10,000 lots was reported in excess of open interest at the May 7.00 calls, again selling mostly to the bid at 35 cents.

We wonder if this willingness among option traders to sell call premium freshly – be it against an underlying stock position or not - has to do with a closer reading of the legal briefs filed Monday in the ongoing Intel wrangle, as explored in yesterday’s online edition of PC World, which noted that AMD will have to more than double its share of the microprocessor market in the long term, just to survive, stating bleakly: “Fresh concerns about AMD’s long-term sustainability coupled with existing worries about the company’s fiscal health – weakened by the delayed release of its Quad-Core Opteron processor and mounting long-term debt – could lead CIOs to consider computers based on Intel’s chips instead.”

Rebecca Engmann Darst contributed to this report.

Comments

[Gumby]

hey AMD quadrupled market share with its Athlons and Opterons early this decade, correct? What is stopping AMD from doubling market share going forward with its new chips and chipsets? AMD fab capacities has plenty to boost production. No problemo... Intel had to dump chips to prevent AMD from producing more chips at more losses.. The judge cometh!

[Gumby]

Intel still has three year old 1.6 ghz Celerons on shelf to sell to you if you want it... You got to be a sucker to buy a laptop with that puny chip inside for $499... while you can buy an AMD Athlon laptop for same price. It seems that buyers know more about cars than chips...

[trader-monk]

can you clarify what you recommend the reader to do in the following text?

Buy AMD January09 7.5 Call? or Sell them?
Buy AMD May 7 call? or sell them?

Your blog says:

we saw a huge, near 23,000-lot glut of volume – far outweighing the existing open interest - in AMD January ’09 calls at the $7.50 strike, trading mostly to sellers for $1.30 today.

Another 10,000 lots was reported in excess of open interest at the AMD May 7.00 calls, again selling mostly to the bid at 35 cents.

can you clarify what you recommend the reader to do in the following text?

Buy AMD January09 7.5 Call? or Sell them?
Buy AMD May 7 call? or sell them?