Adjusting a costless collar

Carl,

Thanks for the book links. I'm reading the sample book right now.


Can you give me an example on the box spread scenario below?




Quote from Carl K:

An adjustment worth considering.
(to a Collar or Bull Call Vertical)

If the stock runs up to your Short Call strike.
Sell a Credit Vertical against it. (Bear Call Vertical)
Using the same strikes and expirations that you have.
Creating a 'Box' spread, locking in profit, and let it expire.

Don't give up, keep learning.

Carl
 
In the book, Exhibit 1-9 shows a typical “Box” spread.

An option Risk Graph usually display expiration graphs (Hockey Sticks)
If there is time to expiration the Graph looks more like an ‘S’ curve.
If the underling goes up to the profit end of the hockey stick on the graph.
You could take that profit at expiration, if the underling would just wait there until expiration.
When you sell a Credit spread (Bear Call Vertical) against your Debit spread (Bull Call Vertical)
you collect your profit from that sale and don’t have to rely on underling price at expiration.

On your Long Collar (Underling has moved up to $110)
Long Collar = Long Stock + Long Put $90 Strike + Short Call $110 Strike
Box of created by
Short Bear Call Vertical = Long Call $110 Strike + Short Call $90 = Credit Spread
Same strikes and expiration.

You are left with
Short Call $110 Strike + Long Call $110 = Closed null
Synthetic Long Call @$90 Strike = Long Stock $100 + Long Put $90 Strike
Short Call @$90 Strike

At expiration underling above $90
Your Put is OTM it will expire worthless,
Short Call is ITM it will be exercised and your Stock Called out.
Trade is closed (you have made your money)

At expiration underling at exactly $90
Your Long Put is ATM it will expire worthless,
Your Short Call is ATM it will expire worthless,
Your Long Stock is @ $90 Sell the Stock
Close the Trade (you have made your money)

At expiration underling below $90
Your Put is ITM sell the Put,
Short Call is OTM it will expire worthless,
Your Long Stock below $90 Sell the Stock
Close the Trade (you have made your money)

I hope this helps.
Try very hard go understand the sample book. If you can understand it buy the full book and learn it.

More reading, not necessarily related to your original question.
http://www.tsueiconsultants.com/
http://www.trading-naked.com/library/jesse_livermore.pdf
http://tinyurl.com/2scdws
http://tinyurl.com/24j5sp
http://www.trading-naked.com/Articles_and_Reprints.htm
 
Sorry for such a long winded answer (my last post).
There is no financial advantage to using a Synthetic close (Box)
over just closing the trade. The same number of commissions,
strikes, expirations, and everything else. It's just another tool.

Depending on your outlook when you reach maximum profit
in the spread, it can be closed, rolled or Metamorphosed to
another spread.

Chapter one of the free book does explain much of it.
http://www.cashflowheaven.com/cws.pdf
Chapter one is a hurdle. If you take the time to understand it,
you will be well ahead of many retail traders.

Carl
 
i suggest checking out my previous thread on married puts and collars...on the internet d a search for ZRadioactive Trading, Kurt Frankenberg, and he has posted some educational videos on you tube also....good luck
 
Quote from lowvoltrader:

...on the internet d a search for Radioactive Trading, Kurt Frankenberg, and he has posted some educational videos on you tube also....good luck

Any review about his book? i think it sells for ~$300!!! don't know what new is he offering ... (especially with the terrible website - overlaps text, poor design)
 
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