Advanced Micro Devices (AMD) is once again getting hammered with the chip sector and is now down around 50% since we entered the position in mid-January.
The reasons for the sector sell-off are well-known to investors. The Federal Reserve’s interest rate hikes caused traders to abandon growth stocks, with the tech sector getting hit particularly hard. In addition, semiconductor companies saw weakening demand after a pandemic-led surge, causing chip stock to get hit even harder.
The cyclical downtrend in chips will end — it always does — and a new bullish cycle will begin. But when that will happen is clouded by uncertainty about the broader economy. While AMD is grossly undervalued, bearish sentiment could weigh on shares for a significant amount of time.
In retrospect, my belief in the company and stock led us into a failed recovery position. Our losses deepened as shares continued to fall, and time decay, which is our friend when selling options, is working against us in the underlying LEAP. In hindsight, a 2024 LEAP would have been a more conservative approach.
The market’s short-term focus is winning out over the company’s long-term fundamentals, and the market sets the price. Therefore, it is time to book a loss on the position and move on.
If you decide to stick with the current position, please do not hesitate to email me with questions.
Current Stock Price: $66.64
Cost Basis: $94.94
Action:
- Buy to close 3 AMD Dec Monthly (12/16) 73 Calls for around $0.03 each ($0.09 total)
- Sell to close 3 AMD Jan 2023 (1/20/23) 70 Calls for around $2.97 each ($8.91 total)
Loss: $86.02, or $8,602 per spread