Event: Advanced Micro Devices (AMD) reports Q3 results tonight after the close. The options market is implying about a 11% one day post earnings move tomorrow. The 10 year average one day post earnings move has been about 9%. I am not quoting the 4 qtr move for two reasons, first the stock is up 140% on the year, and up 250% from its 2016 lows made in Q1, and second, the stock had a one day rally of 52% back on April 21st after an unexpected Q1 beat and Q2 guidance raise.
As for the technical set up, it seems fairly straightforward on a near term basis. $6 could serve as a magnet (more on that below),with $5 looking like staunch near term support, while $8, just above the prior 52 week highs made in August should serve as near term technical resistance:[caption id="attachment_67325" align="aligncenter" width="600"] AMD 1yr chart from Bloomberg[/caption]
Taking a slightly longer term view, $10, the late 2009, early 2010 high should serve as long term technical resistance, with $5 fairly obvious intermediate term resistance and $2 a clear bottom.[caption id="attachment_67326" align="aligncenter" width="600"] AMD 10yr chart from Bloomberg[/caption]
The company has had a couple fairly important headlines since early September. First, the announcement on Sept 6th that the company was doing a sizable capital raise:
of approximately $600 million of its common stock (the “Shares”) and $450 million aggregate principal amount of its convertible senior notes due 2026 (the “New Notes”). AMD is offering all of the Shares and the New Notes.
AMD intends to use net proceeds of $1,020 million received from the offerings to repay its borrowings under its credit facility and/or to purchase its outstanding senior notes.
The equity portion of the offering priced at $6, which could cause investors to shoot first and ask questions later on weak guidance as those who bought on the offering may look to lock in gains above that point. That said, I’d be surprised if Q3 disappointed, the quarter in which they did their first capital raise in a decade after a massive run in the stock.
Oh and the other piece of news that could buoy forward guidance is the recent win from Alibaba to provide their Radeon Pro graphics for their cloud computing data centers. Without being able to quantify this contract, its at least good optics vs much larger GPU rival Nvidia (read our recent thoughts on NVDA here).
If you are inclined to play for a squeeze post results, risk reversals look more attractive than long stock. For instance, with the stock $6.85, selling the Oct 21st 6 put at 10 cents and using the proceeds to buy the Oct 21st 8 call for 10 cents sets up a trade where worst case scenario tomorrow you would have losses below $6, and gains above $8. In between, no harm no foul. A one day trade for those who want to play for a squeeze, comfortable being put the stock at $6, but don’t love the entry at $6.85.