Can Anything Stop This Rampaging Tech Stock?

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This year has seen plenty of gains in technology, but nothing compares with the monster rally in a once-forgotten chip stock.

Advanced Micro Devices (AMD) has already doubled in the third quarter and has appreciated 190 percent since January. That places it ahead of Amazon.com (AMZN), Netflix (NFLX) and Apple (AAPL) — by a long shot.

Judging by today’s options activity, someone made a killing from the rally and is adjusting their position in hope of even more gains:

  • Roughly 21,000 January 25 calls were sold for $6.95. Volume was below open interest, which suggests their previous holding was unloaded.
  • At the same time, he or she purchased some about 17,000 January 25 calls for $2.77.
  • Each contract represents 100 shares, so they collected a net $9.9 million.

Remember, calls tend to appreciate when a rally occurs because they fix the price where a security can be purchased. (See our Knowledge Center.) Tuesday’s investor seemed to enter the session long the 25s and rolled up to the 35s. That let him or her recover about two-thirds of their capital at risk and remain exposed to further gains.

AMD rose 0.57 percent to $30.06 in afternoon trading. This year’s huge run has mostly resulted from a wider margins and market-share gains against arch-rival Intel (INTC).

Despite the surge, chart watchers may conclude that AMD doesn’t seem to have much resistance until it reaches the $42.50 area where it peaked in 2006. That could make some momentum traders expect it to keep running and explain why they’re using longer-dated contracts. Click here for access to our series on options “greeks” like theta.

Disclosure: Options trading may not be suitable for all investors.

Advanced Micro Devices (AMD) weekly chart, showing old high from 2006.
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David Russell is VP of Content Strategy at TradeStation. Drawing on nearly two decades of experience as a financial journalist and analyst, his background includes equities, emerging markets, fixed-income and derivatives. He previously worked at Bloomberg News, CNBC and E*TRADE Financial. Russell systematically reviews countless global financial headlines and indicators in search of broad tradable trends that present opportunities repeatedly over time. Customers can expect him to keep them appraised of sector leadership, relative strength and the big stories – especially those overlooked by other commentators. He’s also a big fan of generating leverage with options to limit capital at risk.