Explore Your Options by Jay Kaeppel
HEDGING WITH COLLARS FOR YOUR LONG POSITIONS
I am holding a stock with an upcoming earnings announcement. I hear talk of an earnings disappointment and the potential for the stock price to fall. But I don’t want to sell my stock and incur a capital gain. I know I can buy a put option to hedge but I don’t want to spend the money to pay the premium. Is there another alternative to hedging my stock position?
Absolutely. One strategy that is well suited for this situation is referred to as a collar. A collar involves holding shares of stock, selling a call option, and buying a put option ...