Replies to post #69176 on Advanced Micro Devices Inc (AMD)

[aleph0]

/ I think the indicator for AMD is the institutional ownership percentage. /

Agree.. something I've always been watching !

[rupert]

avatar

Unfortunately we do not get a snapshot of their positions until 45 days after the quarter ends.

The "snapshot" of institutional ownership is 15 days after the quarter ends. But not all the institutions get their returns in on time so the "snapshot" can be adjusted as the late returns arrive.

I believe shorts are updated once a month in the second week - about 10th.

I have argued that last month's short report may not have accounted for all the shorts that were covered after the 5th December conversion (it reported a drop of about 18 million rather than the 27 million). Some of the balance may show up in this week's report and - all other things being equal - the short position should be reduced further. But it will be interesting to see if new short positons have opened as the share price enjoyed its late December run-up or - and, as you suggested - institutions may have become active shorters.

[ChrisC_R]

Avatar, re: "This reminds me so much of the 2000 AMD runup. Then, as now, institutions were accumulating."

According to a Yahoo source I quoted last week (post 68505), the problem in Q1 2000 was the unwinding of a large position in Call options. I'll repeat most of my post for your consideration and comment:


Will we get the usual January AMD roller coaster?

Last year, from a December high of $25, we got hit by early January profit-taking (by those who had waited to take the tax hit in 2005) followed by the last minute Spansion earnings warning gap down to $15. I'm not expecting the same causes to give the same double-whammy this month, but there could be other factors for big swings.

Options effects can be a biggy. Here is an explanation of how profit taking in options can kill the stock price. It's not easy to follow, so you have to read carefully:

"by: optimist4737 12/31/05 01:40 am, Yahoo Msg: 1291697

Last time they had great earnings in Jan. was I think Jan. 2000 the stock was trading around 39-40 and gapped up to 44 on open and traded up to 45 in the ensuing 30 minutes after the open. Then Morgan started locking in their long call position by selling both the stock and call position. This caused a snowball effect and before we knew it the stock was down on the day and proceeded to trade all the way back to 34 by expiration.
Everyone heading out the door at the same time on good news. But after expiration the stock regained its footing and got back to 40 area within 2 weeks and then it was off to the races all the way to 96 by June 2000.
So the moral is that even with great news the stock can exhibit profit taking and the major Jan option cycle expiration can cause a temporary need to lock profits of the soon to expire options, causing Marketmakers in the stock options to hedge the call option dumping by selling stock as a hedge generally 1:1, ie buy 100 deep calls sell 10,000 shares short exempt.
This is why also short interest can be mis-interpreted. It is not a naked short but one covered by long calls most of the time. I believe at least 50% of the existing short interest is in fact covered in this way.
After the effect of the Jan cycle passed (1-2 weeks) the stock regained its strength as new players emerged and new call option on the buy side emerged. I.e., Call buyers force MM (option market makers) to buy stock to hedge Call sales to customers. This is what happened last time....but beware, this is just a general guideline to what may happen.
JMHO former MarketMaker in AMD options for 15 yrs.

Current option status:

http://finance.yahoo.com/q/os?s=AMD&m=2006-01

From the above site, I see there are quite a lot of in-the-money Call options (~170K contracts = 17M shares) expiring this month, though I don't know how this compares to the past. If these call holders liquidate these Calls, then the MM's will dump their hedge-long ~17M shares. That's quite a few. I guess how fast this happens is the key to the effect........

There are a lot of Puts out there, but most are out of the money and therefore not hedged. However, if the Call selling were to drive the price down to ~$25, then about 100K Puts become in the money, requiring the MM's to hedge by buying stock, which would mitigate the Call effect.

Then there's MaxPain, which is currently around $25:

http://www.ez-pnf.com/maxpain/mp163.htm

....And it looks like there's about $75M to be gained by MM's if the price comes down from $35 to $25-$27. That's only equivalent to a couple of million shares though, and IMO not enough to move the stock price all that far.

So, I expect some option driven fluctuations, but not like Jan 2000.

Comments, critiques welcome.......

Chris in Fla......

[bobs10]

you...

This reminds me so much of the 2000 AMD runup. Then, as now, institutions were accumulating. I remember their ownership reaching 96% of AMD's float. (Speaking of the float...whatever happend to the 25%, or so, shares that were not in the float?) I also rememeber just as the institutional buying raised AMD to the heights there selling pushed AMD into the cellar.

me...

Yeah, things really are a lot different this time around. Back then AMD was basically a one trick pony, with little presence in either the server or laptop markets. Further, AMD was a perennial underdog to INTC's manufacturing abilities, both in capacity and acumen. Add to that the interconnect technology AMD has created since then, along with the on-board memory controller INTC still doesn't have, and the only thing surprising is that it's taken so long for the market to wake up to the changes.

What's going on is no fluke, AMD has done its' homework and is now in the process of reaping the rewards. As an aside, it also doesn't hurt that INTC seems to be continuing its' fumbling ways. It really is amazing the way little AMD seems to have INTC's number. Makes you wonder who the road-kill is?