AMD’s Earnings Review and Trading Strategy: A Tech Analyst’s Perspective

In this insightful session, Danielle Shay, VP of Options, delves deep into Advanced Micro Devices, Inc. (AMD) in anticipation of the upcoming earnings release. As the earnings season proceeds in full swing, big tech companies like AMD, Amazon, and Apple dominate the headlines. Here, we focus on AMD and its position in the semiconductor industry as represented by the SMH ETF.

30 Second Recap

  • Advanced Micro Devices (AMD) is set to release its earnings report, a crucial event in the tech industry.
  • The semiconductor sector, represented by the SMH ETF, has hit new all-time highs, indicating strong performance.
  • AMD’s performance has been impressive, although inconsistent, with fluctuating results after each earnings release.
  • Given the uncertainty about AMD’s post-earnings directional move, a neutral trading strategy is proposed, exploiting high implied volatility.
  • One suggested trade is a $10 wide iron condor, offering a nearly 2:1 risk-reward ratio.
  • Once earnings are out, focus can shift to post-earnings trades based on the daily squeeze signal.

Semiconductor Industry Performance

The semiconductor ETF, SMH, has been performing remarkably well, making new all-time highs, with price targets at 165 and 166. Within the industry, LRCX has shown a strong performance, inching closer to new highs post-earnings. On the contrary, Taiwan’s semiconductor witnessed a post-earnings fall and is still in the recovery phase.

Nvidia, another key player, has been progressing exceptionally well towards the $500 mark. This mixed performance within the industry brings us to the central theme of this analysis: What’s in store for AMD?

AMD’s Historical Run

AMD had an impressive run, reaching a high of 164. However, the earnings results have been inconsistent, with the post-earnings overnight gaps swinging both ways. Despite beating estimates in 14 out of 15 quarters, AMD shares have witnessed considerable fluctuations, leading to uncertain expectations.

The current price action of AMD mirrors the last quarter’s trends, trading lower post-gap down and then rallying on the back of significant news. It is now hovering above a crucial support zone around 105 – 106.

Trading Strategy Ahead of Earnings

Given the lack of conviction in a particular direction, Danielle suggests adopting a neutral trading strategy. The market maker expects an earnings move of around eight dollars, leading to a projected price range of 106 to 122. This range aligns well with AMD’s current support and resistance levels, making it a reasonable zone for the stock to stay within post-earnings.

If the earnings report disappoints, causing a breach below 105-106, it may trigger a rapid fall. Conversely, a positive earnings outcome, leading to a break above 122, could set the stage for a continued rally.

Considering the current scenario, an overnight neutral trade can be a viable option as the implied volatility is pretty high. This strategy aims to capitalize on the high implied volatility and the lack of directional conviction. Danielle proposes selling at 115 and working on buying it back the next day, after the earnings release.

For instance, one might set up a $10 wide trade by selling the 115s and buying the 125 calls and 105 puts. This strategy presents a premium of $6.60 and a max loss of $3.40 per contract, offering a nearly 2:1 risk-reward ratio. After the earnings, the focus shifts towards post-earnings trades considering the daily squeeze.

Remember, Danielle’s strategy is tailored for AMD’s earnings season and might not apply beyond that. For more in-depth insights, be sure to follow Danielle on Twitter (@TraderDanielle) or join the options room.

Don’t let market unpredictability control your gains. With Danielle’s time-tested formula, earnings season – a predictable period occurring four times a year – could be your chance to secure steady profits, no matter the overall market conditions. This system transformed Danielle from a struggling single mom to a full-time options trader and now, Vice President of Options at Simpler. Learn how to spot opportunities when stocks enter the ‘Hot Zone’, exploit the three repeating earnings patterns, and understand the five key numbers crucial to trading earnings season. Join Danielle’s step-by-step training program today and discover how to make earnings season your most lucrative time to trade.

Click here to unlock consistent gains each quarter.