Strategies

 

Weekly Strategy Discussion

The Weekly Strategy Discussion is designed to assist individuals in learning how options work and in understanding various options strategies. Options involve risk and are not suitable for all investors. The strategies discussed are for educational and illustrative purposes only, and should not be construed as an endorsement, recommendation or solicitation to buy or sell securities. Commissions, taxes and transaction costs are not included. Please contact a tax advisor for the tax implications involved in these strategies.

View Options Institute Instructor Peter Lusk illustrate this strategy on CBOE-TV!

The Collar

Example: You are long 100 shares of XYZ stock.Your initial purchase price was well below the current price of $60 and your focus is to protect your accrued gains.

Outlook:Unsure about upcoming product announcements so you are seeking low cost protection for the next four weeks.

Possible strategy:The Collar.

Buy one XYX February 55 strike put at $1.25
Sell one XYZ February 65 strike call at $1.40
Net credit $.15


*All values shown are at the time of expiration .Commissions and other trading fees not included.

XYZ Stock
 Long 55 Put
 Short 65 Call

 Stock Value
 Collar Credit

 Net
Profit/(Loss)
50
 $500
 0
 $5,000
 $15
 ($485)
55
 0
 0
 $5,500
 $15
 ($485)
60
 0
 0
 $6,000
 $15
 $15
65
 0
 0
 $6,500
 $15
 $515
70
 0
 ($500)
 $7,000
 $15
 $515

At Expiration:

Maximum Profit = $515
Breakeven = XYZ at $59.85
Maximum Loss =($485)

In Summary: It is possible to collar your stock position for downside protection with little or no cash outlay.

View Options Institute Instructor Peter Lusk illustrate this strategy on CBOE-TV!




Options involve risk and are not suitable for all investors. Prior to buying or selling an option, a person must receive a copy of Characteristics and Risks of Standardized Options (ODD). Copies of the ODD are available from your broker, by calling 1-888-OPTIONS, or from The Options Clearing Corporation, One North Wacker Drive, Suite 500, Chicago, Illinois 60606. The information on this website is provided solely for general education and information purposes and therefore should not be considered complete, precise, or current. Many of the matters discussed are subject to detailed rules, regulations, and statutory provisions which should be referred to for additional detail and are subject to changes that may not be reflected in the website information. No statement within the website should be construed as a recommendation to buy or sell a security or to provide investment advice. The inclusion of non-CBOE advertisements on the website should not be construed as an endorsement or an indication of the value of any product, service, or website. The Terms and Conditions govern use of this website and use of this website will be deemed acceptance of those Terms and Conditions.