Advanced Micro Devices (AMD) at present would be a gamble of sorts that could either pay out huge or leave a hole in your wallet. This is an appealing strategy because AMD has been unusually silent on the price side, and history has shown us that when good growth stocks such as AMD remain silent, they don’t remain that way for long.
The firm is positioned in the midst of an AI fueled semiconductor explosion, and earnings season is coming up soon, which is considered mostly as an ideal situation for a breakout. But this is no game for the fearful. The entry cost is high, and the time decay is unforgiving if AMD simply strolls sideways.
AMD’s straddle play is sensible since volatility tends to rise ahead of earnings, which provides both call and put buyers an opportunity to make money from quick moves in either direction. If AMD surprises on the upside, the stock may surge and easily be worth more than the premium paid. On the other hand, if earnings are a letdown or the guidance is fragile, the put protection on the downside would come into play. But volatility is already high leading up to earnings, so a lot of the “big move” premium is already factored into option prices.
Another worry is the competition, Nvidia still owns GPUs, and if investors don’t feel AMD is catching up quickly enough, even solid numbers won’t spur the stock far enough to make up for straddle expenses. The straddle might be effective if it is timed appropriately and closed out rapidly, since short-term movement in AMD tends to produce sufficient profit opportunity before time decay diminishes value.
A long straddle in AMD is less about being right on direction and more about making a bet on movement in itself. If AMD is going to burst out of its narrow range with earnings on the horizon, this trade could pay big. But if the stock stays caught in neutral, the threat of losing the whole investment is very real.
For those with very high risk tolerance and a clear exit strategy, the long straddle could be an intelligent move. For the rest, merely owning AMD stock for its semiconductor and AI growth story could be the less stressful means of catching up with the wave.