Hi all, I had been paper trading for awhile now, but I never trade real money before. To begin my trading experience, I am looking for some system that are very conservative. I wonder, if I only do collar that will receive credit, will I ever lose money other than opportunity cost and broker commission? Will my plan work? Is there any conservative system that could be suggest to me, please?
You can never enter into a collar for a credit, unless you leg in or you're talking about a reverse collar, but then that credit doesn't mean the same thing. A collar is a synthetic long call vertical spread, aka bull call spread. So if your plan is to specifically purchase stocks to trade collars then you might as well save on commissions and just trade a vertical spread. On the other hand, if you already hold stocks as a long term investment and want to hegde against adverse price movement then collar is a reasonable strategy. Vertical spreads are a conservative strategy.
Hey Simon1012 By initiating a collar for a credit, I am assuming you mean eg selling a call for $2 and buying a put for $1.50 on a stock you already own. You can lose the opportunity cost and commission, but also have risk between the current price of the underlying stock and the strike price chosen for the put. MTE is right, a collar resembles a long call vertical spread. If I didn't currently own the stock, I too would rather do the spread - tie up a lot less $$, less commission, etc. I also agree that spreads are a conservative and reasonable strategy. But you better talk to your brokerage firm to see what they allow you to do, having not traded before. Some firms classify spreading as requiring a little higher approval level (In other words, they don't want a new person like you to blow themselves up with a strategy they don't understand). Good luck. kny 3