To The Moon

Overview of the Strategy

On July 15, 2024, I initiated a vertical put option strategy for AMD $Advanced Micro Devices(AMD)$  by selling a put option at a strike price of $150 and buying a put option at a strike price of $145, with a maturity date of August 16, 2024. This strategy allowed me to collect an option premium of $46 per contract. The underlying AMD stock has been relatively stable, even as the S&P 500 index $S&P 500(.SPX)$  has reached new all-time highs.

Rationale Behind the Strategy

I chose this strategy based on several key factors:

Stable Stock Performance: Despite the overall market surging, AMD's stock has remained roughly at the same level. This stability makes the vertical put spread an attractive strategy, as it is designed to capitalize on the stock remaining above the lower strike price ($145) by expiration.

Positive Financials and Business Strategy: I am optimistic about AMD's recent financial performance and strategic initiatives, especially their focus on data centers. This indicates strong potential for future growth and a possible positive reaction to upcoming earnings.

Valuation Considerations: Although AMD’s price has been flat over the past quarter, I believe it has reached a fair valuation. This adds a layer of safety to the strategy, as significant downside is less likely.

Potential Outcomes and Reflections

Base-Case Scenario:

If AMD beats the Q2 consensus estimate, as I anticipate, the stock is likely to experience a positive reaction or at least maintain its current level. In this scenario, the vertical put spread will expire worthless, allowing me to keep the full premium collected ($46 per contract).

Risks and Considerations:

While the strategy is well-founded, there are inherent risks:

Market Volatility: Any unexpected market events or broader market corrections could negatively impact AMD’s stock price, potentially pushing it below the $145 strike price.

Earnings Risk: Even if AMD's financials are strong, if the market's expectations are not met or forward guidance disappoints, the stock could decline.

Conclusion

This vertical put option strategy on AMD aligns with my positive outlook on the company's financial performance and strategic direction. By leveraging the stability in AMD’s stock price and the fair valuation, the strategy is positioned to generate income with limited downside risk. As long as AMD remains above $145 by the maturity date, the premium collected will be fully realized, making this a potentially lucrative investment strategy.

$AMD VERTICAL 240816 PUT 145.0/PUT 150.0$