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Aug 1, 2022

How to Trade AMD Stock Heading into Q2 Earnings

By:Ryan Sullivan

Key takeaways

  • Chip manufacturers are still dealing with shortages and global shipping limitations.
  • Fundamentally AMD is showing growth based on recent income statements and balance sheet reports.
  • Price action in July 2022 is now testing the $95 level resistance.
  • Earnings next week presents an opportunity to play the downside or make a neutral play.

What does AMD do?

Advanced Micro Devices (AMD) offers the industry's broadest portfolio of leadership high-performance and adaptive processor technologies, combining CPUs, GPUs, FPGAs, Adaptive SoCs and deep software expertise to enable leadership computing platforms for cloud, edge and end devices.

AMD competes with companies such as Intel (INTC), IBM (IBM), Nvidia (NVDA), and Analog Devices (ADI). Many global factors have drastically affected the semiconductor manufacturing industry, such as supply chain restrictions, materials sourcing, and increased computing demand. AMD must continue to ship smaller and faster processing units that attract customers.

How is AMD doing fundamentally?

Over the last five quarters AMD’s income statements have been constructive. Sales have consistently grown each quarter over that period, rising from $3.4 billion to $5.8 billion. Over that same period AMD’s net income oscillated, rising from about $550 million to $970 million, then falling back to $780 million last quarter.

AMD’s balance sheet over the last five quarters remained consistent until last quarter. During the four quarters before last quarter, total liabilities rose from $3.5 billion to $4.9 billion and total assets rose from $10 billion to $12.4 billion. Last quarter AMD reported total liabilities of $11.5 billion and total assets of $66.9 billion.

Fundamentally, we are seeing growth from AMD over the last five quarters. This trend is constructive and divergent from the downtrend AMD’s stock price remains in.

Fig. 1: Six-month price percent change chart for SPY, AMD, INTC, and NVDA.

How is AMD technically positioned?

AMD recorded its current all-time high price of $164.46 on November 30th., 2021, and is currently trading at $93.07, down 43.41%. AMD has been in a downtrend for all of 2022, posting a lower lows and lower highs.

July of 2022 has shown us very constructive price action, recording mostly green bars on the daily chart so far. Price is now testing key resistance at the $95 level. This price level represents the upward boundary of a trading range that was established between September of 2020 and July of 2021, between $74 and $95. The $95 price level also represents resistance from the upward boundary of the downward channel that has formed from the downtrend that began at the start of 2022.

It is also important that we note the aggressiveness with which AMD bounced off the $74 support level. Once price hit that level in early July of 2022, we reversed direction and gained more than 30%. This is an indication that we can identify as strong support. However, it is always likely that the market will retest new lows before developing a new trend.

How should I trade AMD for earnings?

IV Rank for AMD is currently 42.3 based on the tastyworks calculation. IV for August and September monthly options is above 50. This sets us up for an opportunity to sell premium going into the earnings report next week.

If you believe market sentiment remains bearish, and you’d like to fade AMD’s July bullish move, you can play AMD earnings to the downside with a 40-delta short call spread, as wide as you're comfortable with, with respect to risk.

If you believe that AMD will trade sideways to up in the near term, next week’s earnings represent a good opportunity for a neutral premium selling strategy. A short strangle or short iron condor could be very profitable if you believe AMD will remain around its current price level next week after earnings.

To trade the AMD earnings, open an account on tastyworks!

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