Advanced Collars

asdfghj7 · Mar 25, 2009

Can anyone recommend a book, website, or author/trader who teaches different variations of the standard collar. Or any variation to the collar you or somebody else has used that they preferred over the traditional collar we've all read about. Thanks ahead for taking the time.
example

With XYZ at 30
Buy 100 shares of xyz at 30
buy a 3 month 25 put for 2 pt.
sell a 3 month 35 call for 2 pt.

dagnyt · Mar 25, 2009

Quote from asdfghj7:

Can anyone recommend a book, website, or author/trader who teaches different variations of the standard collar. Or any variation to the collar you or somebody else has used that they preferred over the traditional collar we've all read about. Thanks ahead for taking the time.
example

With XYZ at 30
Buy 100 shares of xyz at 30
buy a 3 month 25 put for 2 pt.
sell a 3 month 35 call for 2 pt.

To answer your question, I cannot.

But a collar is equivalent to selling a put spread or buying a call spread.

Thus anytime you buy one put and sell another with a higher strike, it's some sort of collar.

Likewise, any time you buy a call and sell another with a higher strike, it's some sort of collar.

Mark

spindr0 · Mar 25, 2009

Collars are equivalent to vertical spreads.

So variations would be anything that you add to a spread unless the adjustment makes the position fit nicely into another name (eg. two verticals becomes an iron condor or a butterfly, etc.)

stevegee58 · Mar 25, 2009

They're equivalent to vertical spreads in term of the risk graph. One use of collaring that differentiates it from a vertical spread is acquiring shares at a discount of a stock you're bullish on.

I found this site a while back and the guy had a couple of good pdf files that explain his collar approach:

http://www.tsueiconsultants.com/

I'll be up front by saying I don't collar because I don't want to own stock at all. Owning stock is too risky.

spindr0 · Mar 25, 2009

Quote from stevegee58:

They're equivalent to vertical spreads in term of the risk graph. One use of collaring that differentiates it from a vertical spread is acquiring shares at a discount of a stock you're bullish on.

If the strategies are equivalent then the acquire price will be equivalent (assuming one includes all relevant pricing components)

erol · Mar 25, 2009

I'll be up front by saying I don't collar because I don't want to own stock at all. Owning stock is too risky. [/B]

I suppose it depends what kind of shares.

That's too much of a blanket statement IMO.

dagnyt · Mar 25, 2009

Quote from erol:

I suppose it depends what kind of shares.

That's an easy one.

Shares that go down.

Or, as Will Rogers said: "Don't gamble; take all your savings and buy some good stock and hold it till it goes up, then sell it. If it don't go up, don't buy it"

Mark

stevegee58 · Mar 25, 2009

Quote from erol:

I suppose it depends what kind of shares.

That's too much of a blanket statement IMO.

I know, I know. I just don't like having all that margin tied up in stock when I can spread it around more in option trades.

jwcapital · Mar 25, 2009

Quote from asdfghj7:

Can anyone recommend a book, website, or author/trader who teaches different variations of the standard collar. Or any variation to the collar you or somebody else has used that they preferred over the traditional collar we've all read about. Thanks ahead for taking the time.
example

With XYZ at 30
Buy 100 shares of xyz at 30
buy a 3 month 25 put for 2 pt.
sell a 3 month 35 call for 2 pt.

Good explanations of collars. Now try to execute this "trade" in the real market. My guess, you may get it with a debit instead of a breakeven. The put will be more expensive than the call, plus you have to deal with the wide spreads. In any event, take a look at your risk and reward. Let's assume you actually can get these prices. If the stock finishes at 35 or greater, you gain 5 points. If the stock finishes at 25 or less, you lose 5 points. You also lose anytime the stock finishes between 25 and 30. So, to get any profit, the stock must finish above 30 plus commissions. Please note that for the stock to get to 35, it must gain 18%. I have looked at collars and conversions to squeak out a profit, and with commissions, it just isn't worth it--to me. I would modify this a little. What I have done is enter a covered call...I have a real example, my first. I bought 300 sh of NITE at 100. It went up to 110 before I could check the trade. I sold the 110 call for 30 and bought the 100 put for 10. I have also bought the stock, sold a further-out call and bought the ATM put. It is for a debit, but you have to be far enough out to make up for the debit. Just wanted to give you some insight into my early years. My point is to learn several strategies and apply them in the appropriate environment.

exQQQQseme · Mar 26, 2009

To all those who contributed to this thread I offer sincere thanks. I do understand the synthetics, but you guys express yourselves great.

Thanks again.

4Q