Schaeffer's Midday Options Update Features Advanced Micro Devices.

CINCINNATI -- Today's Schaeffer's Midday Options Update features Advanced Micro Devices (NYSE:AMD). The Midday Options Update contains a brief commentary on the day's most notable activity and a table listing the most-active calls and puts for the day. The Midday Options Update is published every day at www.SchaeffersResearch.com - the home of Bernie Schaeffer and Schaeffer's Investment Research.

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Options Update: Advanced Micro Devices Sees Cost Savings from ATI Acquisition

The major market indices are attempting to bounce back as we head into the final two hours of trading. Energy stocks are seeing quite a push on the session, and a cut in production from the Organization of the Petroleum Exporting Countries (OPEC) is largely to blame. OPEC announced earlier today that it has agreed to cut its current production by 500,000 barrels per day starting on February 1, 2007 "in order to balance supply and demand." In a statement released today, the group said that "The Conference observed that market fundamentals clearly indicate that there is more than ample crude supply, high stocks levels and increasing spare capacity."

Most-Active Options Update

At 2:03 p.m. Eastern Time, the Dow Jones Industrial Average (DJIA - 12,369.7) has added 78.7 points, while the S&P 500 Index (SPX - 1,424.07) has jumped 10.48 points. The Nasdaq Composite (COMP - 2,455.9) has advanced 22.5 points. At 2:04 p.m. Eastern Time, 4,251,525 calls have changed hands compared to 2,196,207 puts, equaling a single-day put/call volume ratio of 0.51. The CBOE's equity put/call volume ratio stands at 0.50, while the ISE's ratio weighs in at 0.61.

Advanced Micro Devices

The world's number-two semiconductor company is making headlines today, as Advanced Micro Devices (NYSE:AMD) announced that it is seeing better-than-projected cost savings from its $5.4 billion acquisition of ATI Technologies. The firm noted that it plans to outgrow the PC-chip market in 2007 by twice the average growth rate. "We still think we can outgrow the microprocessor industry," AMD Chief Financial Officer Bob Rivet told analysts. Looking forward, AMD forecast 2007 gross profit margin at 50 percent of sales and placed capital expenditures at $2.5 billion.

Shares of the semiconductor firm have rocketed higher on the session, gaining more than eight percent so far. Not only has today's activity highlighted AMD as one of the few bright spots in a struggling sector, it has also spurred some considerable activity in the options pits. A veritable cornucopia of calls and puts are seeing heavy volume for AMD, across a wide variety front-and back-month strikes. Specifically, the equity's January 22.50 call and its January 20 put are seeing the lion's share of today's attention from the speculative options crowd.

With so much volume changing hands, I'm just going to skim the surface of the activity taking place on the two most active contracts. To do otherwise is sorely outside the scope of this column. Looking at the call first, the January 22.50 strike has seen several large blocks ranging form 1,000 to 3,000 contracts changing hands to comprise a total volume of more than 20,000 contracts. Open interest currently stands at 54,057 contracts.

Meanwhile, AMD's January 20 put has seen some 52,000 contracts change hands on open interest of more than 106,000. Blocks crossing the tape on this soon-to-be front month contract range from 1,025 contract to a hefty 14,234 contracts. The biggest of these blocks crossed between the bid and the ask price at 70 cents per option, or $700 per contract, for a total capital outlay of roughly $9.96 million.

It is not surprising to see put activity outpacing call activity on AMD, as this has been a trend in the speculative options pits for a while. In fact, the stock's Schaeffer's put/call open interest ratio (SOIR) of 1.05 indicates that puts outnumber calls in the front three months of options. Furthermore, this ratio ranks above 87 percent of those taken during the past year, indicating that investors in the options pits have only been more bearish 13 percent of the time during the past 52 weeks.

Outside the options pits, there is a fair amount of pessimism levied against AMD. More than five percent of the stock's float is sold short, but it would take less than one day for this plethora of bearish investors to buy back their bets. Wall Street, meanwhile, has issued 17 "hold" or worse ratings against just five "buy" or better ratings. I haven't seen any upgrades from analysts on today's news, but any change in heart from the brokerage bunch could add to today's rally in the shares.

Earlier, I mentioned that AMD was a bit of a bright spot in a struggling sector. Reinforcing this idea, the Semiconductor HOLDRS Trust (SMH) has underperformed the S&P 500 Index (SPX) on a weekly basis since the beginning of the year. Unfortunately for AMD, today's "bright spot" appears to be a one shot deal, as the shares have been outpaced by the SMH on a weekly relative-strength basis since March.

Looking at the equity on a weekly chart, you can see that some pessimism is to be expected toward this underperforming issue. Since peaking near the beginning of March, AMD has plunged more than 48 percent, with its 10-week and 20-week moving averages dogging the shares lower. There is some pretty staunch support at the round-number 20 level, from which the security is attempting to rebound, but the stock's 20-week trendline still lingers overhead.

There is a development on the daily chart that I would like to draw your attention to. Since AMD plunged lower in mid-October, the shares have been unable to best resistance at the 22 level. However, the stock appears to be making a run at this region in today's trading.

I feel that a close above or below this level could be a directional signal for the stock. Should AMD manage to hold above 22 by the end of the session, we could see the shares begin to fill in October's bearish gap lower, which would be a bullish technical sign for the equity. However, if AMD fails to close above the 22 region, the shares could be in for a real test of support at the 20 level. Any close below 20 during the next couple of weeks could be a bearish technical sign for the stock.

As always, thank you very much for reading and good luck with your trading!

Click here to see a Daily chart of AMD since October 2006, a Weekly chart of AMD since February 2006 with 10-week and 20-week moving averages, a Weekly relative strength, SMH VS SPX since January 2006, and a Weekly relative strength, AMD VS SMH since March 2006: http://www.schaeffersresearch.com/wire?ID=17874 .

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About Schaeffer's Investment Research (www.SchaeffersResearch.com)

Schaeffer's Investment Research, founded by Bernie Schaeffer in 1981, is a financial information and trading resources company. It publishes Bernie Schaeffer's Option Advisor, the nation's leading options subscription newsletter. The firm's contrarian approach focuses on stocks with technical and fundamental trends that run counter to investor expectations. The firm's website, http://www.SchaeffersResearch.com , is recognized as one of the leading information sources for stock and options traders and was cited as the top options website by both Forbes and Barron's. Click here for more details about Schaeffer's trading methodology: http://www.SchaeffersResearch.com/method .