Imagine saying this to yourself in your best sinister voice: “That’s a nice profit you have on that stock there. It would be a shame if something happened to it.”

That voice in my own brain fires off every time I have a situation like the one I assume many are in with Advanced Micro Devices (AMD). However the concept I’ll show here is a strategy that can be applied to any stock or ETF that has a reasonably liquid options market. I use the Barchart options screener frequently, both to find good collar setups on the names I follow, as well to determine if they are sufficiently liquid. 

That latter question is a matter of personal preference. For instance, if the bid-offer spread on an option is small, and you are a self-directed investor like me, you’re likely not buying hundreds or thousands of contracts. So you can get what you want much of the time, in terms of trade size. 

AMD’s Historic Run, and What Happens Next 

The semiconductor maker’s stock has gained 66% in just the past three months. As impressive as that is, it is far from the first time that’s occurred. It last happened from late 2023 through early 2024. And AMD has had several 50% runups since the pandemic in 2020. 

However, it has also had many declines of 25%-35% over that period. Let’s face it, this is a volatile stock. And regardless of the fundamentals, AMD trades like most stocks do today: a little on fundamentals, but a lot based on market sentiment toward what the company is doing, And, how its industry, sector, and the broader market are doing. 

All of this rings that alarm bell for me. I bought AMD back on June 9, at just over $120. So at $177 on Aug. 4, I was feeling concerned. Now that I had conquered the upswing in AMD, I was looking to collar it. 

For full disclosure, I have collared AMD since the moment I bought the stock. But since this is instructional, let’s assume I had not used options and simply had a big gain on AMD. 

This chart is not terrible. Just overvalued. But when I see that type of distance down to the 150-day moving average, that calls for some defense to join an appreciated offensive position in a stock.

That was the daily chart. AMD’s weekly (below) does not look urgently toppy to me either. The PPO indicator is quite high, but not yet threatening to roll over, as it did to mark that early 2024 top. 

That was AMD’s all-time high around $211. But with the stock at its highest level in a while, and with its 2024 high around $185 not far, I’d rather be safer than sorry. 

Speaking of high levels, 60x trailing earnings and 11x sales are not cheap. Even for a company that is as well-run, in the right industry at the right time, and has minimal debt. 

I added that all up and concluded on Monday that I didn’t want to sell just yet, but I didn’t want earnings (announced Aug. 5 after market close) or another market event to steal my unrealized gains. Thus, the collar.

Why Not a Stop Order? 

Because they don’t work. Not like they used to. Stocks are just too volatile around earnings now. The attraction of the stop order, and even the trailing stop order that automatically rises with the stock, are antiquated to me. They don’t work when you most need them to. It is like having a life insurance policy that pays when you break your finger, but doesn’t pay your heirs when you’re gone. No thank you. 

The collar possibilities are endless with a stock like AMD (table below current as of Aug. 4), so I present a few varieties below.

The general idea on this one is that I looked out to November, about 3.5 months. That’s plenty of time for AMD to rally as high as $190-$200, and short enough to get caught in a callable position because the stock soars well above that level.

The put strikes I narrowed down to create a less than 1% cost and reasonable break-even for this collar. These all result in different versions of about a 2:1 upside to downside ratio. For a 3-month collar, that’s pretty good. 

I’m just one investor, and I know we are all different. But I tend to shy away from stocks like AMD when they have appreciated so greatly. However, when you own a stock that has popped so impressively, collars are a way to hang in there, but essentially locking in a worst-case scenario. In this case, one which retains a big profit, while still reaching carefully for more upside.