Options Trading Heavy After BAML Boosts AMD Price Target

Microsoft said it will use AMD chips in its new Xbox at E3

Plenty of buzz has been swirling around 2019 Electronic Entertainment Expo (E3), including Microsoft's (MSFT) new Xbox reveal, which will be powered by Advanced Micro Devices, Inc. (NASDAQ:AMD) chips. As a result -- and ahead of AMD's own E3 appearance later today BofA-Merrill Lynch boosted its AMD stock price target to $40 from $35.

Wells Fargo chimed in, too, saying the news, while expected, "reinforces AMD's positioning in the high-end processor and graphics market for game consoles." In reaction to the E3 news and bull notes, Advanced Micro Devices stock is up 4.6% at $33.86, fresh off a 13-year high of $34.30, leaving the door open for more bearish analysts to change their tune.

Amid today's surge, options traders are flocking to AMD. Most recently, 294,000 calls and 130,000 puts were on the tape, roughly two times what's typically seen at this point. Most active is the weekly 6/14 34-strike call, which is possibly being bought to open for a volume-weighted average price of $0.83. If this is the case, breakeven for the call buyers at the close this Friday, June 14, when the weekly options expire, is $34.83 (strike plus premium paid).

One long-term trader appears to be bracing for a sharp pullback for AMD stock by this time next year. Specifically, it looks like 7,000 June 2020 15-strike puts were bought to open for an initial cash outlay of $392,000 (number of contracts * $0.56 premium paid * 100 shares per contract). This is the most the put buyer stands to lose, should the equity stay above $15 through expiration, while profit will accumulate on a move below here.

Given the deep out-of-the-money status of this put, it's possible the action here came at the hands of a shareholder protecting paper profits. In fact, since skimming the $16 region in late December, AMD stock has shot up 111%, with recent support emerging at its 50-day moving average.