Options Corner: Advanced Micro Device's Hidden Probability Curve Favors Sharp Upside

Benzinga_recent_news12-10

With Advanced Micro Devices Inc. (NASDAQ:AMD) gaining about 119% year-to-date through late October, it was perhaps inevitable that concerns about sustainability rose to the forefront. In particular, ...

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In particular, ...</p>\n\n<a href=\"https://www.benzinga.com/markets/options/25/12/49292146/advanced-micro-amd-stock-bullish-quant-signal-upside-move\">Source Link</a>\n\n</div>\n\n\n</article>\n</div>\n</body>\n</html>\n","isBrief":false,"type":0,"news_type":1,"symbol":"LU2264538146.SGD","symbol_name":"Fullerton Lux Funds - Global Absolute Alpha A Acc SGD","start_time":0,"source_url":"https://www.benzinga.com/markets/options/25/12/49292146/advanced-micro-amd-stock-bullish-quant-signal-upside-move","article_id":"2590324477","we_media_id":null,"thumbnails":["https://cdn.benzinga.com/files/images/story/2025/12/09/Advanced-Micro-Devices--Inc--NASDAQAMD.jpeg?optimize=medium&dpr=2&auto=webp&width=240"],"rights":{"source":"benzinga_recent_news","url":"https://www.benzinga.com/markets/options/25/12/49292146/advanced-micro-amd-stock-bullish-quant-signal-upside-move","rn_cache_url":null,"directOrigin":true},"url":"https://stock-news.laohu8.com/highlight/detail?id=2590324477","pubTimestamp":1765314900,"columns":[],"sourceInfo":{"source_id":"benzinga_recent_news","name":"Benzinga"},"weMediaInfo":null,"summary":"A new quant signal in Advanced Micro Devices reveals where AMD stock is most likely to land, opening a defined-risk opportunity for traders.","collect":0,"end_time":0,"defaultTopTitle":"benzinga.com","property":[],"viewcount":null,"language":"en","relate_stocks":{"LU2264538146.SGD":"Fullerton Lux Funds - 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In particular, anxieties about a bubble brewing in the artificial intelligence sector saw several high-profile tech names plunge. However, despite AMD stock tumbling from its prior highs, the security has recently flashed a quantitative signal that points to potential upside ahead.\nUnlike standard financial publications, I'm primarily basing the bullish hypothesis on the demand structure undergirding AMD. True, there are compelling business narratives that bolster the optimistic case for Advanced Micro; in particular, many experts have noted that generative AI is still in its early stages. As such, even though AMD's valuation looks rich, there could be more growth ahead.\nHowever, such reasoning — though logical and sensible — are well known. In other words, the forward implications have likely been baked into the AMD stock price. Therefore, to understand where AMD goes from here, investors must analyze price and its transitions.\nUnfortunately, in the equities market, time is the enemy of inference as different environmental factors — including one-off events — could impose distortions on the extracted information. However, by forcing a symmetry of conditions by arranging continuous price data as a series of multiple rolling windows or trials on a time-fixed distribution, we can extract a security's demand structure.\nConceptually, a distribution collapses infinite variation into countable regularity. With this format change, we can calculate the probability density function (PDF) or the likelihood that the target stock price will be at a particular level at a fixed time horizon. Such calculations reveal the geometry of risk, which changes the game entirely when it comes to options trading.\nTo be quite blunt, the explanation above is wildly complex, in part because it's so unconventional. Still, by applying the methodology, the concept becomes surprisingly intuitive.\nIn the case of AMD stock, if we arranged its historical data into a time-fixed 10-week distribution, the forward 10-week returns can be calculated to land between $215 and $245 (assuming an anchor price or starting point of $222.50). Moreover, price clustering would likely be predominant at around $240.\nBasically, the above calculations stem from taking all 10-week trials since January 2019 and observing where AMD landed percentage-wise following the trial period. That percentage is then plotted on a distributional curve using a kernel density estimation algorithm.\nStill, we're not interested in the aggregation of all trials but in the current quant signal at hand, which is the 6-4-D sequence; that is, over the trailing 10 weeks, AMD stock printed six up weeks and four down weeks, with an overall downward slope.\nIt's not so much the sequence itself that's important here. Rather, we're trying to measure how the market responds to this particular quant signal as opposed to other patterns or market stimuli. As it turns out, the 10-week distributional outcomes shift noticeably from the baseline expectations, with prices ranging between $212 and $270. Most significantly, price clustering should occur predominantly at $240.\nNow, the advantage of calculating AMD's risk geometry is not only limited to identifying probability density but also probability decay.\nFrom $240 to $250, AMD's probability density declines by 32.88% on a relative basis. But from $250 to $260, density erodes by 80.41%. Not only that, the next $10 interval sees a decay of 97.92%.\nAs an options trader of multi-leg strategies, you would be incentivized to buy premiums associated with the future value of AMD stock up to $250, where the 6-4-D sequence's probabilistic mass indicates relatively high probability density. But from $250 onward, density decay plunges, which means you're incentivized to sell this component of the distributional curve.\nIt's not so much that time-based methodologies, such as fundamental and technical analysis, are devoid of any useful information. Rather, time distorts the inferences we might otherwise draw from the data in question. However, by fixing time as a constant, we can focus purely on the structural drivers of price action.\nThat's why distributional analysis is so powerful — and why it makes options trading so much easier. Basically, we have a visual guide to actual demand (not time-contaminated demand), thus allowing us to make more informed decisions based on our risk-reward tolerances.\nFor the most aggressive but rational speculator, the 240/250 bull call spread expiring Feb. 20, 2026 is awfully tempting. This wager requires two simultaneous transactions: buy the $240 call and sell the $250 call, for a net debit paid of $315 (the most that can be lost).\nShould AMD stock rise through the second-leg strike ($250) at expiration, the maximum profit is $685, a payout of over 217%. Breakeven lands at $243.15, which is basically at peak probability density.\nWhat I love conceptually about this trade is that, from $250 onward, the exceedance ratio of AMD stock diminishes exponentially. As such, we would rather sell this portion of the distributional curve, as it's unlikely to materialize. This shrewd approach allows us to put risk capital to better use by discounting a probable long position rather than buying a premium tied to an improbable outcome.\nThe opinions and views expressed in this content are those of the individual author and do not necessarily reflect the views of Benzinga. Benzinga is not responsible for the accuracy or reliability of any information provided herein. This content is for informational purposes only and should not be misconstrued as investment advice or a recommendation to buy or sell any security. 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