the collar trade - safe option strategies · the collar trade defined long stock long put at of...
TRANSCRIPT
This class is a production of Safe Option Strategies © and the content is protected by copyright. Any reproduction or redistribution of this or any Safe Option Strategies ©
presentation is strictly prohibited by law.The information presented in this class is for education purposes only. Safe Option Strategies © does not make any recommendation to buy or sell stocks or options. Trading stocks and options comes with risk and you are solely responsible for any
losses you may incur as a result of trading.
Module 5.3The Collar Trade
The Collar Trade
The Collar Trade Defined
Long Stock
Long Put At of Near The Money at Least Out in Expiration Past the Next Earnings (or other set) Event
Short Call One or More Months Farther Out in Expiration Than Our Long Put and At Least One Strike Price Higher (we always want our short call credit to be at least as much as what we spend on our long put)
Module 5.3The Collar Trade
Module 5.3The Collar Trade
Module 5.3The Collar Trade
Earnings Reports are Very Key in Collar Trading
Module 5.3The Collar Trade
Technical Bullish and Bearish Indicators are also Very Key in Collar Trading.
Module 5.3The Collar Trade
Stock $83.56Long Put $3.20Covered Call -$3.50Net Cost Basis $83.26With the right to sell our stock at $82.50/share we have only $0.76/share at risk.
Module 5.3The Collar Trade
Stock $13.77Long Put $0.80Covered Call -$0.80Net Cost Basis $13.77With the right to sell our stock at $14.00/share we have zero risk in this trade.
Module 5.3The Collar Trade
Stock $502.97Long Put $26.55Covered Call -$27.35Net Cost Basis $502.17With the right to sell our stock at $500.00/share we have $2.17/share risk in this trade.
Module 5.3The Collar Trade
Stock $______Long Put $_____Covered Call -$_____Net Cost Basis $______With the right to sell our stock at $______ /share we have zero risk in this trade.
Calculate the Cost Basis and Max Risk for BA Stock
Module 5.3The Collar Trade
Stock $105.53Long Put $3.15Covered Call -$3.70Net Cost Basis $104.98With the right to sell our stock at $105.00/share we have zero risk in this trade.
Calculate the Cost Basis and Max Risk for BA Stock
Module 5.3The Collar Trade
Stock $______Long Put $_____Covered Call -$_____Net Cost Basis $______With the right to sell our stock at $______/share we have zero risk in this trade.
Calculate the Cost Basis and Max Risk for ADBE Stock
Module 5.3The Collar Trade
Stock $46.06Long Put $1.73Covered Call -$1.99Net Cost Basis $45.80With the right to sell our stock at $46.00/share we have zero risk in this trade.
Calculate the Cost Basis and Max Risk for ADBE Stock
Module 5.3The Collar Trade
Stock
Net Cost Basis $45.80 If we get called out at $48/share
we profit the difference between our cost basis and the $48.00 strike price of our short call.
$48 - $45.80 = $2.20 or about 5% ROI
CC
LP
Bullish Worst Case Scenario for ADBE
Module 5.3The Collar Trade
Stock
Net Cost Basis $45.80 If we exercise our long puts and
sell our stock for $46.00/share we gain $0.20/share minus whatever it costs us to buy back our covered call (we cannot leave a call naked)
We get out of our trade with little or no loss.
CC
LP
Bearish Worst Case Scenario for ADBE
Module 5.3The Collar Trade
Stock
CC
LP
Calculate Bullish Worst Case Scenario for BAStock $105.53Long Put $3.15 ($105 Strike)Covered Call -$3.70 ($110 Strike)Net Cost Basis $104.98With the right to sell our stock at $105.00/share we have zero risk in this trade.
Net Cost Basis $104.98 If we get called out at
$___/share we profit the difference between our cost basis and the $____ strike price of our short call.
$__ - $_____ = $_____ or about __% ROI
Module 5.3The Collar Trade
Stock
CC
LP
Calculate Bullish Worst Case Scenario for BAStock $105.53Long Put $3.15 ($105 Strike)Covered Call -$3.70 ($110 Strike)Net Cost Basis $104.98With the right to sell our stock at $105.00/share we have zero risk in this trade.
Net Cost Basis $104.98 If we get called out at
$110/share we profit the difference between our cost basis and the $110.00 strike price of our short call.
$110 - $104.98 = $5.02 or about 5% ROI
Module 5.3The Collar Trade
Stock
CC
LP
Calculate Bearish Worst Case Scenario for BA
Stock $105.53Long Put $3.15 ($105 Strike)Covered Call -$3.70 ($110 Strike)Net Cost Basis $104.98With the right to sell our stock at $105.00/share we have zero risk in this trade.
Net Cost Basis $104.98 If we exercise our long puts
and sell our stock for $_____/share we lose $____/share plus whatever it costs us to buy back our covered call (we cannot leave a call naked)
Module 5.3The Collar Trade
Stock
CC
LP
Calculate Bearish Worst Case Scenario for BA
Stock $105.53Long Put $3.15 ($105 Strike)Covered Call -$3.70 ($110 Strike)Net Cost Basis $104.98With the right to sell our stock at $105.00/share we have zero risk in this trade.
Net Cost Basis $104.98 If we exercise our long puts
and sell our stock for $105/share we gain $0.02/share minus whatever it costs us to buy back our covered call (we cannot leave a call naked)
We exit the trade for little or no loss.
Summary
The Collar Trade is Used to Protect Stock Through Periods of Uncertainty (like earnings)
Collar Trades can be Structured With Zero Risk for a Period of Time
Understanding Your Cost Basis, Your Max Risk, and Your Max Reward (without adjusting) is Crucial to Structuring Collar Trades
Module 5.3The Collar Trade