Stocks remain under pressure, so it’s time to look at some more bearish opportunities, such as Advanced Micro Devices (AMD). AMD stock sits below its 21-day exponential, 50-day and 200-day moving averages, and now faces several challenges that contribute to a bearish outlook.
For one, the company may face renewed competition from Intel (INTC), as the latter seeks to revitalize its chip offerings under new leadership.
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Meanwhile, AMD’s 50-day moving average is sitting around 109. Strong upside resistance exists at 115.
One possible trade is a bear call spread that assumes AMD will struggle to get back above the 115 level between now and mid-April. A bear call spread involves selling an out-of-the-money call and buying a further out-of-the-money call.
The strategy can be profitable if the stock trades lower, sideways, and even if it trades slightly higher, as long as it stays below the short call at expiry.
How The Bear Call Spread Would Work
A May 16 expiry bear call spread on AMD stock using the 115-120 strike prices can be sold for around $1.10, according to recent trading. Traders selling the spread would receive $110 in option premium per contract. That also stands as the maximum possible gain. So this trade represents a potential return of 28.2% between now and May 16. The maximum loss would be $390.
The spread achieves the maximum profit if Advanced Micro Devices stock closes below 115 on May 16. In that case, the entire spread would expire worthless, allowing the trader to keep the $110 premium. The maximum loss will occur if AMD stock closes above 120 on May 16. That would see the premium seller lose $390 on the trade.
While some option trades have the risk of unlimited losses, a bear call spread is a risk-defined strategy. Investors always know the worst-case scenario in advance.
A stop loss remains an option if Advanced Micro Devices trades above 110. Consider closing the trade if the spread value rises from $1.10 to $2.20.
Rankings For AMD Stock
According to IBD Stock Checkup from Investor’s Business Daily, AMD stock ranks seventh in its group and has a Composite Rating of 60, an Earnings Per Share Rating of 96 and a Relative Strength Rating of 13.
Please remember that options are risky, and investors can lose 100% of their investment.
This article is for education purposes only and not a trade recommendation. Remember to always do your own due diligence and consult your financial advisor before making any investment decisions.
Gavin McMaster has a Masters in Applied Finance and Investment. He specializes in income trading using options, and is conservative in his style. He also believes patience in waiting for the best setups is the key to successful trading. Follow him on X/Twitter at @OptiontradinIQ.
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