AMD Earnings Tomorrow. The Options Market Sees More Risk Up Than Down.

Key Concepts

• Implied Volatility (IV) Rank: A measure of current implied volatility relative to its historical range over the past year.
• Call Skew: A market condition where out-of-the-money (OTM) call options are more expensive than OTM put options, indicating higher demand for upside exposure.
• Broken Wing Butterfly: A non-directional or slightly bullish options strategy that involves buying one option, selling two, and buying another at a wider strike to cap risk.
• Delta: A measure of the sensitivity of an option's price to changes in the price of the underlying asset.
• Expected Move: The price range the market anticipates the stock will trade within based on current option premiums.

Market Context and Performance

AMD has experienced a significant rally, moving from approximately $100 to $350 over the past year, representing a gain of over 200%. As the fifth-largest holding in the SMH (Semiconductor ETF) with a market capitalization near $400 billion, it is a bellwether for the semiconductor sector.

Earnings Volatility: AMD’s recent earnings reports have been characterized by high volatility:

• Q4 (Last Year): -17%
• Q2 (2025): -6.5%
• Q1: +1%

Options Analysis

The current options market reflects high expectations for price movement leading into the May 5th earnings report.

• Implied Volatility: The IV rank is at 80, indicating that option premiums are historically expensive. The weekly expiration (ending May 5th) shows an implied volatility of 108%.
  • Technical Note: 100% IV implies that the market is pricing in the possibility of the stock either doubling or going to zero over a one-year timeframe.
• Call Skew Dynamics: Analysis of the 20-delta options reveals significant call skew. The 20-delta call is roughly $40 out-of-the-money, while the 20-delta put is only $30 out-of-the-money. Despite the call being further out-of-the-money, it is priced similarly to the put, suggesting investors are paying a premium for potential upside speculation.

Proposed Strategy: Broken Wing Butterfly

To capitalize on the high premium and the observed call skew without taking on naked directional risk, the speaker suggests a Broken Wing Butterfly strategy.

Methodology:

1. Structure: Buy one call, sell two calls (at the 20–30 delta range), and buy one wing (a further OTM call).
2. Specific Setup:
   • Buy the 360 call.
   • Sell two 370 calls (the 30-delta strike).
   • Buy a 390 call (creating a $20-wide short call spread to finance the $10-wide long call spread).
3. Outcome: This setup results in a small credit (approx. $0.70).
4. Risk Profile:
   • Downside: If the stock price drops, the trader keeps the $0.70 credit.
   • Upside: Risk is capped above $380.
   • Probability: The strategy offers an 83% probability of profit (POP) and aligns with the market's expected move.

Synthesis and Conclusion

AMD remains a high-conviction, high-volatility stock within the semiconductor space. Given the elevated IV rank and the clear presence of call skew, the market is positioning for significant upside potential. Rather than taking a naked directional position, the use of a broken-wing butterfly allows traders to benefit from the "juicy" premiums while mitigating downside risk. This approach provides a tactical way to participate in potential post-earnings volatility while maintaining a defined risk-reward profile.