Using collars for hedging portfolio

A

andrew black

Wondering if anyone here is using a such thing. Pros and cons. Best practices. Thanks.

https://www.investopedia.com/terms/c/collar.asp

Understanding the Collar
An investor should consider executing a collar if they are currently long a stock that has substantial unrealized gains. Additionally, the investor might also consider it if they are bullish on the stock over the long term, but are unsure of shorter term prospects. To protect gains against a downside move in the stock, they can implement the collar option strategy. An investor's best case scenario is when the underlying stock price is equal to the strike price of the written call option at expiry.


The protective collar strategy involves two strategies known as a protective put and covered call. A protective put, or married put, involves being long a put option and long the underlying security. A covered call, or buy/write, involves being long the underlying security and short a call option.
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jys78 said:
It's another tool in the box. ... Depends what you're trying to accomplish.
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What actually I am trying to accomplish is to freeze my portfolio, without selling and realizing the gains, for about 6 months. Can you suggest any better solution?
 
andrew black said:
What actually I am trying to accomplish is to freeze my portfolio, without selling and realizing the gains, for about 6 months. Can you suggest any better solution?
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Collar is a reasonable option. Nothing will be perfect.

There are other option. For example, you could sell futures equivalent to your portfolio thereby locking your value without realizing any gains on your original portfolio. Of course you'd have to roll the contacts, and be subject to capital gains/loss on the futures themselves.
 
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