Stocks & Commodities V. 26:12 (62): Explore Your Options by Tom Gentile
Product Description
Explore Your Options by Tom Gentile
COLLAR ADJUSTMENTS
I have a collar on a stock. I am still very bullish and the stock has come down quite a bit, so when does it make sense to buy back the call for a profit and let it ride?
The collar is becoming a more popular strategy after the latest selloff. A lot of investors who want to buy are looking at how far some stocks have fallen. The problem is, prices are still falling and volatility is high. Fear is at an extreme, and many investors are reluctant to buy stocks despite the bargains that now seem to exist.
The collar offers a limited-risk way to buy stocks. The trade is a combination of a protective put (long puts, long stock) and a covered call (long stock, short calls). It is created by buying shares, buying puts, and selling calls (and can also be applied to an existing position). The put provides a floor under the stock and the sale of calls helps pay for the put. In addition, since implied volatility is so high right now, option premiums are very expensive and it makes sense to sell some call premium to pay for the put options.
COLLAR ADJUSTMENTS
I have a collar on a stock. I am still very bullish and the stock has come down quite a bit, so when does it make sense to buy back the call for a profit and let it ride?
The collar is becoming a more popular strategy after the latest selloff. A lot of investors who want to buy are looking at how far some stocks have fallen. The problem is, prices are still falling and volatility is high. Fear is at an extreme, and many investors are reluctant to buy stocks despite the bargains that now seem to exist.
The collar offers a limited-risk way to buy stocks. The trade is a combination of a protective put (long puts, long stock) and a covered call (long stock, short calls). It is created by buying shares, buying puts, and selling calls (and can also be applied to an existing position). The put provides a floor under the stock and the sale of calls helps pay for the put. In addition, since implied volatility is so high right now, option premiums are very expensive and it makes sense to sell some call premium to pay for the put options.
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