Name: Collar
Setup: Own the stock and Sell (short) a call and Buy (long) a put
Bias: Neutral to Slightly Bullish (If the underlying sky rockets in price you will be forced to sell at the strike price missing out on the extra gains)
Break-Even: Two breakeven points could exist:
- If the play is established for a net credit (cash inflow) the break-even is the current underlying price – the credit received
- If the play is established for a net debit (cash outflow) the break-even is the current underlying price + the debit paid
Max Profit: Limited: The strike of the short call – the current underlying price + the credit or – the debit paid
Max Loss: Losses will equal the current underlying price – the strike of the long put + the debit paid or – the credit received
Margin: The short call is covered by the purchase or ownership of the stock – no margin needed
Time Decay: As time passes the call will drop in value and the put will also drop in value. This is a neutral effect.
Implied Volatility: Movement in implied volatility will also be neutral.
Notes: None at this time
Featured in Trade Review: None at this time
