There are many ways to trade appreciating collars (I'll forget about protective collars for the time).
Some observations on the appreciating collar (assumption is long stock plus long atm put plus short otm call, same expiry).
1. as already pointed out by others, the original collar is risk free if initial short call covers cost of long atm put (ignoring dividend issues for time being).
2. when stock moves up, one makes money by rolling up the put provided the cost of rolling is less than the difference in strike prices (i.e. original put strike minus rolled up put strike).
3. if stock goes nowhere, one loses money from evaporation of extrinsic value of long put.
4. if stock goes down, and position was opened for some debit (i.e. short call premium did not cover put cost) then that debit will be lost. One way to try to avoid/minimise this loss is to buy back the short call (should be cheap after significant bearish move) and sell a new, still otm strike, call. At the same time the put will need to be rolled down to the new atm or close to the money. There will be some extra money left over from the put roll, this can be used to purchase more stock and further puts to cover the new stock - the new position will have a higher net delta and thus further benefit from a bullish move.
5. selling the calls is optional and depends on one's view.
6. rolling only works when there has been a significant price movement, say greater than 5% in the underlying.
7. failure to roll down after a significant downmove will limit losses but will also result in a slower "recovery" of the position's profits.
As one can notice, this is really a dynamic hedging collar strategy, iow adjustments are a necessary part of this for optimal profits and many variants are possible, e.g. ratioing the put strikes. Naturally, one wants high volatility for the sale of the call to be worthwhile if using near month calls and longer term puts.
Best
daddy's boy
Some observations on the appreciating collar (assumption is long stock plus long atm put plus short otm call, same expiry).
1. as already pointed out by others, the original collar is risk free if initial short call covers cost of long atm put (ignoring dividend issues for time being).
2. when stock moves up, one makes money by rolling up the put provided the cost of rolling is less than the difference in strike prices (i.e. original put strike minus rolled up put strike).
3. if stock goes nowhere, one loses money from evaporation of extrinsic value of long put.
4. if stock goes down, and position was opened for some debit (i.e. short call premium did not cover put cost) then that debit will be lost. One way to try to avoid/minimise this loss is to buy back the short call (should be cheap after significant bearish move) and sell a new, still otm strike, call. At the same time the put will need to be rolled down to the new atm or close to the money. There will be some extra money left over from the put roll, this can be used to purchase more stock and further puts to cover the new stock - the new position will have a higher net delta and thus further benefit from a bullish move.
5. selling the calls is optional and depends on one's view.
6. rolling only works when there has been a significant price movement, say greater than 5% in the underlying.
7. failure to roll down after a significant downmove will limit losses but will also result in a slower "recovery" of the position's profits.
As one can notice, this is really a dynamic hedging collar strategy, iow adjustments are a necessary part of this for optimal profits and many variants are possible, e.g. ratioing the put strikes. Naturally, one wants high volatility for the sale of the call to be worthwhile if using near month calls and longer term puts.
Best
daddy's boy