As Advanced Micro Devices (AMD) prepares to announce its earnings, there is a notable divergence between expected positive results and the stock's negative price action. Historically, AMD shares have shown considerable volatility post-earnings, averaging a 16.5% move in either direction within a month.
Current options pricing suggests a 7.3% move, which is above the median of 6.4% from the last eight quarters. However, AMD's technical indicators are signaling a bearish outlook, with various momentum metrics indicating a short bias. The broader context reveals that since July 1st, 45 tech hardware and semiconductor companies have reported earnings, with 38 beating top-line expectations.
Despite this, the market reaction has been predominantly negative, with an average price decline of 13.4% across these companies. This trend indicates a high hurdle for IT hardware stocks, as capital shifts towards more defensive sectors like Healthcare and Financials.
To navigate potential downside risks, a proposed strategy involves a calendar put spread, which aims to capitalize on post-earnings volatility while managing risk. This strategy involves selling a shorter-dated put option to finance the purchase of a longer-dated put, allowing for potential profitability within a stock price range of $370 to $525