(Note: The author of this fundamental analysis is a financial writer and portfolio manager.)

Advanced Micro Devices (AMD) shares have had a horrible run since October 24, falling by nearly 21 percent, while the broader S&P 500 Index has remained relatively unchanged. But the stock looks as though it could be bottoming and could rise more than 11 percent over the near-term, based on technical and options market analysis.

The five-minute chart suggests the chipmaker could be putting in a bottom. That bottom appears to be sitting right around a critical support level around the $10.70 mark. Additionally, the chart shows the trading volume has leveled off after an initial sell-off, suggesting all the weak hands and day traders have moved out of AMD. 

 

 

A Rise to $14.25?

When taking a longer-term view using the hourly chart, we can see that there is a sizeable gap that was created after the stock reported its 3Q financial results at the end of October.

To refill that gap, the stock would need to rise to roughly $14.25 a share. That rise could happen over the next couple of weeks should Advanced Micro Devices be able to stabilize over the short-term.

 

 

But the concern here is that the stock price could fall below $10.50. The downside risk is probably to about $9.75, a decline of roughly 13 percent. 

Bullish Options Bets

Options that are set to expire on December 15 also have a bullish viewpoint on the direction of AMD. The $12 strike price calls have nearly 21,000 contracts of open interest, while the puts show only 5,900.

For the $12 calls to be profitable, the stock would need to rise almost 11 percent to $12.50. Meanwhile, the $13 calls have about 16,000 calls of open interest and are trading at price of roughly $0.20, implying a rise of almost 17 percent. 

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High Levels Of Volatility

The long straddle using the $11 strike price implies a 12 percent rise or fall in the stock price – a range of roughly $9.70 to 12.30 – while the number of open contracts is relatively even. 

Implied volatility is very high, at nearly 50 percent. That's about five times higher than the S&P 500 Index reading of 10 percent. This makes buying contracts of Advanced Micro Devices very expensive. 

AMD shares appear to be searching for a bottom after a rough couple of weeks. The technicals and option bets seem to imply that the bottom may already be here. (See also: AMD's Chip Growth in Doubt After Exec's Departure.)

 

Michael Kramer is the Founder of Mott Capital Management LLC, a registered investment adviser, and the manager of the company's actively managed, long-only Thematic Growth Portfolio. Kramer typically buys and holds stocks for a duration of three to five years. Click here for Kramer's bio and his portfolio's holdingsInformation presented is for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any specific securities, investments, or investment strategies. Investments involve risk and unless otherwise stated, are not guaranteed. Be sure to first consult with a qualified financial adviser and/or tax professional before implementing any strategy discussed herein. Upon request, the advisor will provide a list of all recommendations made during the past twelve months. Past performance is not indicative of future performance.

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