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

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