Heavy volume in out-of-the-money (OTM) put options in Advanced Micro Devices (AMD) is a bullish signal. Given the company's strong free cash flow (FCF) and analysts' revenue upgrades, the underlying value of AMD stock is much higher.

AMD is up almost 3% today at $142.54 per share. Last month, Advanced Micro Devices reported strong earnings and free cash flow results. I discussed this in a subsequent Barchart article, showing AMD could be worth $141 per share, up from $119 at the time.

Analysts have raised their revenue forecasts. As a result, assuming at least a 12% free cash flow margin, it could be worth as much as 30% more, or $185 per share. That could be why investors are trading heavy volume in AMD options today.

This can be seen in today's Barchart Unusual Stock Options Activity Report. It shows that the $141.00 put option strike price contract expiring on Friday, June 27, 2025, has had over 12,800 contracts traded.

That means that investors shorting these puts can give an investor an immediate yield of 0.90% for just two days (i.e., $1.28/$141.00 = 0.00907). Moreover, these investors have a lower breakeven of just $139.72 (i.e., $141.00 - $1.28), or -2% below today's trading price.

In other words, it's a great way to set a lower buy-in price. That is why this is a bullish signal. Let's see why AMD is worth buying.

Strong Free Cash Flow and FCF Margins

As I showed last month in my Barchart article, AMD is making strong FCF margins. Its Q1 FCF margin was 10% and it's likely to rise higher based on analysts' significantly higher revenue forecasts.

For example, analysts now project sales in 2026 will rise +17.8% to $37.41 billion. That is up from $31.75 billion expected this year and $25.79 billion in 2024. This is due to strong demand for its AI-related chips and data center-driven demand.

As a result, if we assume conservatively that its 2026 FCF margin rises to at least 12%, FCF could rise to almost $4.5 billion:

  0.12 FCF margin x $37.41b 2026 revenue est. = $4.49 billion FCF

That is significantly higher than the almost $3 billion run rate it was on during Q1 (i.e., $727m FCF x 4 = $2.9b).

In other words, the stock should be worth considerably more.

For example, using a 1.5% FCF yield valuation metric, its market cap could rise to almost $300 billion:

  $4.49b FCF est / 0.015 = $299.3 billion market cap

That is 30% higher than its present market cap of $230.8 billion, according to Yahoo! Finance:

  $299.3b / $230.8 = 1.297x = +29.7%

In other words, AMD stock could be worth 29.7% more over the next 12 months:

  $142.54 x 1.297 = $184.87 target price

Analysts Agree. Analysts tend to agree that AMD is undervalued. For example, AnaChart.com reports that 36 analysts now have a price target of $161.62 per share. That is up from $135.36 a month, as I reported in my last Barchart article.

So, no wonder investors are piling into AMD stock. Its strong FCF margins, higher revenue forecasts, and rising analyst price targets are leading to a realization that AMD is worth much more.

Investors who copy this out-of-the-money (OTM) short-put play should be careful, however. It could lead to an unrealized capital loss if AMD stock falls below the breakeven level. Investors can study Barchart's options learning center tabs to review the risks of options trading.