The chip rip has only just begun, options trader says

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One options trader bets $2 million on AMD to break out

Semiconductor stocks are surging on news that the U.S. and China have agreed to the first phase of a trade deal between the two countries, and the options market is betting that this is just the beginning of an even bigger chip rip.

The trade-sensitive group of names just broke out to brand-new 52-week highs, and Tribeca Trade Group CEO Christian Fromhertz says there are reasons to believe this is the beginning of a sustained move higher.

"One of the patterns that I really like is when we see consolidation in an uptrend," Fromhertz said Thursday on "Fast Money." "We have that in a couple of different places in the Semiconductor ETF."

Fromhertz pointed out that the semiconductors have not only just broken out of a period of consolidation but that their move higher has been confirmed by their performance against the broader technology space.

"We've got the same thing going on here. We've got a little bit of a dip, and now we've got some real nice relative strength that's going on in the semiconductors versus the overall market," said Fromhertz.

But even amid a big rip higher in the overall semiconductor space, there is one name that stands out among the rest to Fromhertz.

"We're seeing a lot of option activity in AMD, and I think this is a great name to play for momentum. It's got a little bit over 9% short interest, and in the technicals we've got the same thing going on here — we've got a little bit of consolidation and then a break higher."

More importantly to Fromhertz, the options activity in AMD is confirming the stock's break higher.

"We're seeing two times average call volume," said Fromhertz, "which is the conviction that we want to see as well when we're playing a name within a group."

"Right out of the gate today, we saw some momentum in AMD and a nice-sized trade."

Early on in the day, a trader bought 7,000 February 40-strike calls for $3.45 per contract. Since each contract is worth 100 shares of stock, that translates to a $2.4 million bet that AMD would surge at least 5% by February expiration.

AMD was trading about 1% lower in Friday's session.

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