Selling a put does not give an investor access to AMD's upside potential the way owning shares would, because the put seller only ends up owning shares in the scenario where the contract is exercised. And the person on the other side of the contract would only benefit from exercising at the $120 strike if doing so produced a better outcome than selling at the going market price. (Do options carry counterparty risk? This and six other common options myths debunked). So unless Advanced Micro Devices Inc sees its shares fall 51.2% and the contract is exercised (resulting in a cost basis of $103.15 per share before broker commissions, subtracting the $16.85 from $120), the only upside to the put seller is from collecting that premium for the 4.9% annualized rate of return.
Below is a chart showing the trailing twelve month trading history for Advanced Micro Devices Inc, and highlighting in green where the $120 strike is located relative to that history:
The chart above, and the stock's historical volatility, can be a helpful guide in combination with fundamental analysis to judge whether selling the December 2028 put at the $120 strike for the 4.9% annualized rate of return represents good reward for the risks. We calculate the trailing twelve month volatility for Advanced Micro Devices Inc (considering the last 251 trading day closing values as well as today's price of $244.68) to be 59%. For other put options contract ideas at the various different available expirations, visit the AMD Stock Options page of StockOptionsChannel.com.
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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
