AMD’s 106% Rally Boosts Demand for Insurance in Case of Correction: Options Chatter

An active buyer paid a $7.48 million premium for put options that give their holder the right to sell 200,000 AMD shares at $250 each over the next 210 days. The transaction was posted Thursday as the stock headed for an eighth straight gain, triggering technical indicators that signal the rally may have gone too far, too fast and sentiment could soon turn negative.

The stock has rallied amid increasing demand for advanced chips that power artificial intelligence workloads. Bloomberg Intelligence analysts estimate that the market for AI accelerator chips, including graphic processing units and custom chips, could grow at a compound annual rate of 16% to more than $600 billion by 2033.

But after the huge rally, Morningstar analyst Brian Colello lowered his rating on AMD to the equivalent of hold, as the share price climbed closer to his $270 price target.

The stock’s 14-day relative strength index climbed to around 73 Thursday. That’s its second day above 70, a level that signals to some who study charts that the stock could be overbought and the trend may soon turn bearish. Eleven of the 15 most commonly used technical indicators on the moomoo app, including RSI, are flashing the same warning.

Some large speculators and institutional investors could be using put options as protection, in case the technical indicators turned out to be right, and the share price rally reverses. The higher volatility is also making it attractive for sellers of options.

Implied volatility (IV) percentile now sits at 79%, meaning the current volatility is higher than 79% of the past trading days. That signals buyers are paying higher premiums for call and put options, making it attractive for sellers to write those contracts.

The open interest for put options, or the tally of outstanding contracts to sell AMD shares have surpassed the call options, taking the put call ratio to 1.02. That ratio is the highest since the end of September.

Based on the current implied volatility, the $250 put options bought in Thursday’s biggest AMD block trade has a 41% probability that the trade could be profitable for the buyer before it expires. It has a maximum profit potential of $21,217.50 per contract of 100 shares, and a maximum loss potential of $3,782.50.

The breakeven level is $212.175, meaning AMD shares will need to drop below that level for the option holder to make money on that trade.