Trade of the Week: Navigating Volatility with a Strangle on AMD

Week of January 6th, 2025

This week, technology giants AMD and Nvidia took center stage at the highly anticipated CES conference on Jan 6th, showcasing their latest innovations. While the broader market remained subdued, with most indices flat or in the red, Urban Bear Capital leveraged a carefully designed options strategy to generate impressive returns. Specifically, we opened a strangle on AMD, which was successfully closed two days later on January 8th for a net gain of 3.6%, despite AMD’s underlying stock declining by 4%.

Let’s dive deeper into the strategy behind this trade and how Urban Bear Capital consistently achieves risk-managed growth, even in challenging market conditions.

What Is a Strangle in Options Trading?

A strangle is a versatile options strategy designed to profit from significant price movement in the underlying asset—regardless of direction. To construct a strangle, a trader:

• Buys a call option with a strike price above the current market price

• Buys a put option with a strike price below the current market price

The lifecycle of a strangle

The trader benefits if the underlying asset moves sharply in either direction, as long as the movement is sufficient to cover the cost of both options (the premium). However, if the underlying asset remains stagnant, the strategy can result in a total loss of the premium paid for the options.

The Position

We opened the following strangle:

Ticker: AMD Price at Open: $130 Call Leg: $145C 3/21 Put Leg: $120P 3/21

Price at Close: $122.5 Time Open: 2 Days

Net Gain/Loss: 3.6%

Urban Bear Capital’s Unique Approach

While a strangle can be a powerful tool in the right hands, improper execution or poor timing can lead to severe losses. At Urban Bear Capital, we leverage a proprietary trading framework to optimize the deployment of strategies like the strangle. Here’s how we stand apart:

1. Data Driven Decision-Making: Our approach is grounded in rigorous market analysis and data-driven insights. In the case of AMD, we identified heightened volatility around the CES event, creating the perfect conditions for a strangle.

2. Risk Management: While options trading inherently carries risks, our strategies are designed with built-in hedges to limit potential losses. For the AMD trade, our disciplined entry and exit points ensured a profitable outcome even as the underlying stock declined.

3. Perfect Conditions: Our unique framework prevents us from opening a position unless all the criteria is met to ensure it is an A+ setup. Deciding factors include historical movement of the underlying, price of the premium, required move, IV, Theta and other Greeks effect on the derivative and many many more.

4. Consistent Returns: The ability to thrive in adverse market conditions is a hallmark of Urban Bear Capital. This week’s 3.6% gain was achieved while the broader market remained flat or negative, underscoring the effectiveness of our methods.

   
   

The Risk of Improper Execution

It’s important to note that opening a strangle isn’t inherently complex, and many traders attempt it. However, without the right knowledge and tools, the strategy can be a double-edged sword. Common pitfalls include:

• Choosing the Wrong Strike Prices: Selecting strike prices too close to or far from the current market price can result in unprofitable trades.

• Ignoring Market Conditions: Strangles thrive in volatile environments. Executing them in low-volatility periods or on the wrong securities often leads to losses.

• Lack of Exit Strategy: Holding a strangle too long or exiting too early can erode potential profits or amplify losses.

  
  

Why Choose Urban Bear Capital?

At Urban Bear Capital, our mission is to empower investors with risk-managed strategies that deliver consistent growth. Whether the market is soaring, stagnant, or declining, our expert team ensures your investments remain optimized. The AMD strangle is a prime example of how we navigate complex market scenarios to achieve exceptional results.

Learn to Navigate the Markets with Us

Equity and derivative investments offer exciting opportunities, but success requires expertise, precision, and discipline. With Urban Bear Capital by your side, you can:

• Gain access to unique hedged strategies tailored to your goals.

• Achieve consistent growth in any market condition.

• Navigate volatility with confidence.

  
  

Stay tuned for more insights in next week’s Trade of the Week and discover how our strategies can help you make the most of your investments. Want to learn more? Contact us today and start your journey toward risk-managed financial success!