Investors looking to purchase Advanced Micro Devices Inc (AMD) stock at the current price of $171.45 per share might consider an alternative strategy: selling a December 2027 put contract at the $110 strike price, which has a bid premium of $12.45. This strategy could yield an 11.3% return against the $110 commitment, equating to a 4.8% annualized rate of return.
The selling of this put contract does not provide upside potential compared to owning shares directly, as the seller only acquires shares if the contract is exercised. This would only happen if AMD shares dropped by 35.6%, leading to a cost basis of $97.55 per share, factoring in the premium received.
On Friday, the put volume among S&P 500 components reached 1.69 million contracts, while call volume stood at 2.13 million, resulting in an unusual put:call ratio of 0.80 compared to a long-term median of 0.65, indicating heightened interest in put options trading.
