http://www.theoptionsinsider.com/tradingtechnology/?id=904
Came across this the other day and it seemed pretty relevant given the current market conditions. A lot of people are probably looking for ways to hedge and protect their stock portfolios these days. This article lays out three ways to do it:
A "no-cost" collar
A "bearish" collar
and a "diagonal" collar.
Enjoy...
How To Hedge Your Stock Positions Using Collars
Posted on 7/1/2008 in Trading & Technology by Lawrence D. Cavanagh
It is well known that you can hedge a stock by either buying a put or by writing a call on it. What is not so well known is that you can combine these two strategies. This long stock + short call + long put combination is known as a "collar."
As we shall show you with four different variants, this combination is really very flexible. In a coming report, we will show you the advantages and disadvantages of a different hedge, the 1-to-1 bear spread.
Hedging With A "Collar"
Usually, when setting up a collar (long stock + short call + long put), you write a near-the-money call on stock that you own and buy an out-of-the-money (i.e. lower strike) put on this same stock. On a net basis, if the call strike price is closer to the stock price than put strike price, you will take in premium....
full article here:
http://www.theoptionsinsider.com/tradingtechnology/?id=904
Came across this the other day and it seemed pretty relevant given the current market conditions. A lot of people are probably looking for ways to hedge and protect their stock portfolios these days. This article lays out three ways to do it:
A "no-cost" collar
A "bearish" collar
and a "diagonal" collar.
Enjoy...
How To Hedge Your Stock Positions Using Collars
Posted on 7/1/2008 in Trading & Technology by Lawrence D. Cavanagh
It is well known that you can hedge a stock by either buying a put or by writing a call on it. What is not so well known is that you can combine these two strategies. This long stock + short call + long put combination is known as a "collar."
As we shall show you with four different variants, this combination is really very flexible. In a coming report, we will show you the advantages and disadvantages of a different hedge, the 1-to-1 bear spread.
Hedging With A "Collar"
Usually, when setting up a collar (long stock + short call + long put), you write a near-the-money call on stock that you own and buy an out-of-the-money (i.e. lower strike) put on this same stock. On a net basis, if the call strike price is closer to the stock price than put strike price, you will take in premium....
full article here:
http://www.theoptionsinsider.com/tradingtechnology/?id=904