Traders bet AMD could surge 6% by the end of the week

VIDEO2:2502:25
Semiconductor surge coming

One semi stock could be set to surge.

That's at least according to the options market, which is tentatively betting that the recent chip stock whiplash could soon come to an end, said Michael Khouw, co-founder and chief strategist at Optimize Advisors.

"We saw call volumes outpace put volumes by more than 4 to 1" in Advanced Micro Devices' stock on Monday, Khouw said on CNBC's "Options Action" after the end of Monday's trading session.

With more than 220,000 contracts traded, investors were flocking to place bets that the semiconductor giant, which has shed nearly 11% in the last month, is on a path to recovery, Khouw said. The most active trade was a $32 strike call expiring at the end of this week.

"Buyers of those calls are betting that it's going to be above that [$]32 strike price by at least the 30 cents that they were paying for those contracts," Khouw said, adding that those traders were likely betting on a "little bit of a relief rally, or just looking to play that volatility where stocks have been beaten up hoping that they might bounce back."

For that trade to be successful, AMD's stock would have to rally by more than 6% from its Tuesday levels.

And not all the "Options Action" panelists were sold on this trade.

"If you look at the [VanEck Vectors Semiconductor ETF] ... it's probably done nothing for the last two years except slowly make a couple new highs," said Tim Seymour, founder and chief investment officer at Seymour Asset Management. "I would just say simply here we're getting nowhere higher without some type of resolution on the trade deal, otherwise it becomes a very, very volatile trade in the short run."

Brian Kelly, founder and CEO of digital currency investment firm BKCM, had a more positive outlook.

"These [options] expire on Friday, and remember: Sept. 1, obviously, we've got the potential for tariffs," he said Monday. "I think these names, clearly, are going to be the ones that would pop if, for some reason, they delay tariffs, or there's some sort of resolution. ... So, this is actually not a bad trade."

AMD shares were down 1.3% in midmorning Tuesday trading. The VanEck semiconductor ETF, ticker SMH, was down less than 1%.

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