August 4th, 2023
AMD Trade Nets Impressive Profit
We just closed our second winning trade on Advanced Micro Devices (AMD) in Options Income Weekly in just over a month. We’ve actually traded the semiconductor maker for years in this service. However, our latest trade was a bit different.
Rather than sell a short-term put option as we typically do, we put on a longer-duration trade, selling a put that was 45 days to expiration (DTE).
Specifically, on July 11, we recommended selling to open the AMD 25 Aug 99 Put for $2.55, or $255 per contract. That’s a larger chunk of cash than we usually pick up thanks in part to the greater time premium.
Also helping to elevate the premium was the fact that the expiration date fell after the company’s upcoming earnings announcement.
We noted at the time that we would look to exit the position once the premium fell to $1, ideally before the company reported earnings after the close on Aug. 1.
After putting on the trade, AMD ran up to a high above $120 before turning lower and falling back toward the $110 level.
As we approached the company’s earnings date, the premium was holding steadily above our target exit price. Yet, we stuck to our guns, comforted by the fact that our put was well out of the money (OTM) and that we would have a few more weeks to manage the position after the report if need be.
But on Aug. 1, the stock rallied ahead of the company’s scheduled earnings announcement, and the premium on the put we sold dropped below our $1 target exit price to $0.95.
We recommended members buy back the put they sold, booking a profit of $1.60, or $160 per contract, for a 1.6% return in 21 days.
The next day, shares sold off after Advanced Micro Devices reported that second-quarter sales and adjusted operating income were down sharply from a year ago.
The stock remained well above our 99 strike price, meaning holding through earnings would not necessarily have been a problem. However, with these longer-duration trades, we’re generally looking to collect 50% to 60% of the max credit received and then turn that capital over with a new trade. And that’s precisely what we did with AMD.
After booking more than 60% of our max profit, we turned around the next day and entered a new trade on the stock. This time, we sold a shorter-term put with the goal of taking advantage of elevated premiums due to the company’s post-earnings sell-off.
We’ll continue to recommend the occasional longer-term trade with the goal of collecting a larger chunk of cash upfront and potentially closing early for a nice rate of return.
Managing Editor, Traders Reserve