Next year (2024), one of the technology trend I shared in my earlier article is AI advancements Increases.
Stocks To Trade Around Top Technology Trends In 2024!
Organizations will be shifting from table top planning to actual implementation. In order to have a better and more efficient Generative AI model, large language models, or LLMs would be run.
We should be seeing lesser developers running smaller workloads with $NVIDIA Corp(NVDA)$ GPU chips either on the cloud or on their personal computing devices. AMD newly unveiled Instinct MI300X accelerator and the Instinct M1300A accelerated processing unit (APU), is said to has 1.5 times more memory capacity than the previous M1250X version. Both new products have better memory capacity and are more energy-efficient than their predecessors.
Looking at this development, I would like to share one of my option strategy trade for $AMD.
Advanced Micro Devices (AMD) IV Percentile Rank
AMD implied volatility (IV) is 37.3, which is in the 9% percentile rank. This means that 9% of the time the IV was lower in the last year than the current level.
The current IV (37.3) is 2.4% above its 20 day moving average (36.4) indicating implied volatility is trending higher.
Advanced Micro Devices (AMD) IV vs 20-Day HV
The current IV (37.3) in AMD is -12.7% below its 20 day HV (42.7) suggesting that options markets are predicting future volatility to trade below the most recent 20 day realized volatility.
Advanced Micro Devices (AMD) Seasonal Volatility
Historically, implied volatility for AMD tended to rise the most in October with a median IV Of 61.8, while November tended to be when implied volatility declined To its lowest levels With median IV Of 46.7.
Historically, the median IV for the current month of December was 51.3 compared to the current IV of 37.3. The IV level in January following December tended to be higher, with a median IV of 58.7.
Advanced Micro Devices (AMD) IV Skew
The implied volatility skew shows the market's bias for pricing in volatility risk to the option premium of downside puts and upside calls. If the implied volatility for downside puts is increasing relative to upside calls, then that suggests the market is pricing in a larger fear to a downside move.
The current skew indicator is giving a Slight Bullish signal.
Advanced Micro Devices (AMD) Debit Call Spread (60-Day Maturity)
AMD Call Spread Benchmark Index (60-Day Maturity, ATM to +5%) is unchanged today at 2.1% premium to stock price. This value is equal to its 52-week average premium of 2.2%.
The AMD Call Spread Benchmark Index is designed to track the theoretical cost of buying an at-the-money call and selling an out-of-the-money call 5% above the spot price for options with 60 days to maturity.
How I Trade Using Debit Call Spread Strategy
I decided to go for Debit Call spread instead to maximize the gain and also to reduce the risks.
Currently, AMD last price is $148.76, I will be using this contract that expiration date is 50 days away on 16 Feb 2024, I will make one leg to buy a call on the $150 strike for $9.65
I will add another leg - sell a call at $160 strike for $5.65.
The initial cost of the Debit Call strategy would be $4 ($9.65-$5.65). In order for me to make a profit from this strategy, the stock price would need to move higher than $154 which is calculated from long strike ($150) plus cost of the spread ($4).
My maximum gain would be realized if the stock moves above the $160 strike. Hence, my call spread would be worth $10 and my cost was $4. This will net me a profit of $6.
Summary
Based on how AI advancements will shift from smaller workloads to larger workload by big organizations, I would think AMD new chips launched at a right timing. Organizations are seeking faster and more efficient chips, while some of them building own chips could take years.
If we look at AMD past option Implied Volatility, the IV tend to be higher for January.
I would expect orders for AMD chips to increase from OEM manufacturers, large companies like $Meta Platforms, Inc.(META)$ has expressed their interest.
Appreciate if you could share your thoughts in the comment section whether you think AMD could capture the demand from AI advancements with their new AI chips.
@TigerStars @Daily_Discussion @Tiger_Earnings @TigerWire appreciate if you could feature this article so that fellow tiger would benefit from my investing and trading thoughts.
Disclaimer: The analysis and result presented does not recommend or suggest any investing in the said stock. This is purely for Analysis.
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