Exactly two months ago, I wrote an article here on Advanced Micro Devices (AMD), which began as follows: “Imagine saying it with the best threatening voice: “It’s a great profit you have there. It would be a shame if something happened to that.”
Then, as always, I did not try to predict the future. I tried to insure against risk risk.
Since 1987 I invested disaster during every market disaster, and that is enough to make “defense” even more important than “crime” in my book. This applies to my swing, long -term investment and everything that is between them.
From August 6 The AMD had something for everyone but those who bought it and kept it on Friday on Friday, October 3, last Friday. As shown in this 2 -hour price chart, the shares moved 10% in both directions, but closed for approximately level.
And then we got a big news on Monday.
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AMD has announced that Openai will use its chips as part of their mass historical investment in AI infrastructure. Under certain conditions, Openai even gets the opportunity to buy up to 10% of AMD shares. AMD is like an oz wizard you choose to be his business partner.
It has a long -term consequence or short -term potential for disaster. Or both. That is why, as I have described in August, AMD sets here as an ideal candidate for a collar. If you own it, or if you think about it.
As I see, if I intend to buy stocks that have just ran out in one day and have the desire, let’s say the excitement in both directions, I have two choices:
Buy a smaller size AMD. Less risks (dollars) mean that any percentage loss can occur, my dollar loss is lower.
Buy, but surround it with a choice collar. I remind you that this is exactly what I bought in the AMD “round parties” out of 100 shares of repeat, I buy protection to create a strongest case scenario for a while. I sell a covered invitation to help you pay for that negative “insurance policy”.
While some are selling a balkee of a covered call, I remind you that I last checked that AMD reaches the price of my call strike, there are no laws before you buy more stocks. This is a “high -end problem” for me, as we will see in the updated collar example below.
First of all, the diagram AMD. I have any stock or ETF collecting is not related to those intensive opportunities, as well as the price of a strategic level and call strike. It helps me the chart’s work.
AMD’s daily image obviously shows that the vault is higher Monday. And while the percentage of the oscillator (WTO) indicator at the bottom is not over the proverb roof, I do not go into one day as it is easy.
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Especially when the weekly chart shows a possible double top in the $ 227 area, which was opened on Monday morning. The last time AMD saw the area about 19 months ago. Don’t you think markets have a memory? Check that!
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The mission is to see how to have access to further upside down, but the negative “call my price”, as far as I can lose, say, 100 AMD shares. And it would cost around $ 20,500. It is worth protecting.
The collars are like snowflakes. Many look similar, but they are all unique. All variables that can be analyzed are each Put Strike, Call Strike, Strike, Strike, validity and volatility level (current and compared to the history of stock itself). Basically, the collar strategy is really as personalized as it is desired.
In the case of AMD, from the day of Monday, it stood out for me. This collar assembly exits until 2026. January, so more than 3 months from now.
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Strike prices are very clean, round number. The installation is $ 200 and the calls are $ 250. The costs are justified to me – only 3.8%. And this creates a sudden 18% potential compared to only 6.4% negative. Or nearly 3: 1 ratio, which is quite good for this short time before the expiration.
This allows the collar investor to sit down and see what AMD is doing next, but with a line in the sand to the negative side. And with the upper limit almost 25% above, where the AMD closed on Monday. It’s like melatonin to a troubled investor. And given that these stocks have shown the ability to move quickly during the day, despite the large size, I think it is worth considering.
On the day of the publication, Rob Isbitts had no (directly or indirectly) positions in none of the securities mentioned in this article. All information and data in this article are only for information purposes. This article was originally published in barchart.com
