A zero cost collar?

Discussion in 'Options' started by crgarcia, Aug 25, 2008.

  1. If you buy and hold other people money (in futures, rolling contracts over and over again).

    I was about to hold a covered call, but they pay so little for ESU8 OTM calls.
    However this insignificant premium, may well be used buying puts in a zero-cost-collar.

    This is specially useful when managing other people money, as they tend to frown upon the unlimited risk in futures.
    Of course I use few leverage, at most 5:1
     
  2. MTE

    MTE

    A collar is nothing more than a long vertical call spread, so what's the point of making 3 trades when you can achieve the same thing with 2!?
     
  3. Do you realize that a covered call is the same thing as a short naked put?
     
  4. Calculate the actual return on a real no-cost collar first to see if it is even worth doing, then simply buy the vertical.
     
  5. exactly
     
  6. How sure are you about the general validity of that statement?
     
  7. Just for clarification, some people have found zero-cost collars using LEAPS which seem to lock in a double digit return but when annualized over the 2 years o f the LEAP expiration it comes out to nothing worth locking up the money. Always check the returns to see if and by how much you are beating the risk-free rate after commissions/taxes.
     
  8. MTE

    MTE

    Here we go again...

    Before we get into a heated debate about this for the umpteenth time, let's just say that for the purpose of this thread it is valid.
     
  9. What was the conclusion of those debates, and where are the references?

    And what'is you opinion about the validity instead of just assuming something?