AI firestorm stokes chip space

Self-driving cars have been a hot theme all year. Yesterday they shifted gears into one of the busiest corners of the options market.

A news report hit late Wednesday that Advanced Micro Devices (NASDAQ: AMD) would help Tesla Motors (NASDAQ: TSLA) develop artificial intelligence for autonomous vehicles.1 AMD's never a slouch when it comes to options, ranking as the sixth busiest company by average volume in the previous month. But yesterday's buzz drove it to No. 2 on the list, trailing only tech behemoth Apple (NASDAQ: AAPL).

Buyers started in the fast lane early, plowing capital into the shortest-term contracts that can ratchet higher if the stock rallies. (They can also turn worthless if the shares don't accelerate quickly enough.) The first blocks hit seconds after the opening bell, and focused on today's weekly expiration. Here's the tale of the tape:

  • The 22-September 14 calls were the hottest contract, bought early in the morning for $0.28, followed by prices as high as $0.41 minutes later as AMD spiked to its highest level in almost two months. Premiums later fell as low as $0.04 as the shares pulled back. Volume at the strike zipped past 38,000 by the closing bell.
  • The 22-September 13.50 calls followed with volume of more than 28,000 contracts. This time the blocks fetched $0.55, followed by prints as $0.09 when the shares pulled back into lunch.
  • The 22-September 14.50 calls and 22-September 13s also had volumes of 17,000 and almost 12,000, respectively.
Advanced Micro Devices (AMD) 3/31/17 - 9/21/17 chart

Source: OptionsHouse by E*TRADE.

All told, more than 150,000 contracts changed hands just in the various 22-September options coming due today. Compare that with the 138,000 average volume across all options expirations in a typical session. Traders didn't need implanted AI circuits to know fast money when the see it.

AMD relinquished its early gains to close the session down 2.40 percent to $13.41. The decline came after executives said the company hadn't yet finalized a deal with TSLA.2

If the story pans out, analysts said it could open new opportunities for a chip maker that's mostly benefited from strong desktop-computer demand. It also surprised many investors because the electric-car maker has a policy of keeping technology in-house.2 Will AMD now let traders hitch a ride on Elon Musk's ambitious plans for self-driving cars and mega trucks?3

Others viewed it as marginally bad news for Nvidia (NASDAQ: NVDA), another high-flying chip stock that's hit stratospheric levels on hopes of its AI potential.4

Bottom line: AMD had its busiest session in almost two months yesterday amid hopes of the company making headway into one of the hottest tech markets around.


Click here to log on to your account or learn more about E*TRADE's trading platforms, or follow the Company on Twitter, @ETRADE, for useful trading and investing insights.

1. CNBC: Tesla is working with AMD to develop its own A.I. chip for self-driving cars, says source. 9/20/17.

2. Reuters: GlobalFoundries says no commitment from Tesla on chip deal. 9/21/17.

3. Seeking Alpha: Analysts weigh in on AMD's Tesla collaboration. 9/21/17. Barron's: Nvidia V. AMD: Street Mulls Head-Scratcher of a Tesla Rumor. 9/21/17.

4. Benzinga: Tesla-AMD Partnership Likely A 'Modest' Negative For Nvidia, But Its Competitive Moat Still Substantial. 9/21/17.