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Dec 10, 2021

AMD & NVDA Stock Price: Where Next for Semiconductors?

By:James Blakeway

After relentless rallies, both Advanced Micro Devices (AMD) and NVIDIA (NVDA) lost some steam the last few weeks, showing a small pullback along with the broad-based stock indices. Unlike the indices, AMD and NVDA did not rally in the last week.

While the returns in the S&P 500 for 2021 are impressive, it does pale in comparison to both AMD and NVDA. Even with the recent dips, investors in AMD and NVDA are looking at year-to-date returns above 50% and 125% respectively.

The option markets for both stocks indicate that the large movements may not be over, as implied volatility for each is over double that of the S&P 500. More importantly, the implied volatility ranks for AMD and NVDA are above 50, meaning the options are priced higher than 50% of days over the past year.

Trade Ideas in Semiconductors

Traders looking for premium selling opportunities might consider the ideas presented in the Alpha Boost email sent by Quiet Foundation this morning.

NVDA Neutral Trades

This Iron condor trade combines a short put spread with a short call spread, the spreads are the same width, meaning there is equal risk (of $148) on both sides of the trade. The trade will be profitable if NVDA continues to stay above $260 and below $337.50

Bullish Positions in AMD

Traders who think AMD is poised for another rally maybe more interested in a bullish trade setup. This Jade Lizard combines a short naked put with a short call spread. For this set up, the total credit on the spread ($5.55) is greater than the width of the spread ($5), so there is no theoretical risk to the upside. If AMD explodes higher, the trader would keep the $55 excess premium.

The strategy uses more buying power due to the short naked put, but this allows a trader to take assignment (receive shares) on AMD stock should it fall below $125. That trader would then be long AMD shares at a cost basis of $119.45 (125 – 5.55 credit). Note that owning shares requires more capital than a short put for a margin account.

Sign up for the Alpha Boost newsletter for more trade ideas sent directly to your inbox and check out the Follow Feed on tastyworks for the latest strategies from tastytrade co-hosts.

Options involve risk and are not suitable for all investors. Please read Characteristics and Risks of Standardized Options before deciding to invest in options.

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