collars

Discussion in 'Options' started by asdfghj7, Dec 29, 2008.

  1. spindr0

    spindr0

    Actually, that's not quite true. You have risk down to the protective put's strike price plus any debit paid, if any, for the collar. While it may give you peace of mind to have insurance, there's still risk. In your XYZ example, it's $10.50 . IMO, the dividend isn't worth that risk.

    If you think that XYZ is going down, it's better to get out of the way (sell the stock). If you can't do that, consider a small overwrite ratio (6:5, 7:5) on the calls. While that theoretically entails upside risk (the naked calls), you'll have 10 pts of stock appreciation (to 90) to buffer it and it will take a massive move over 90 to send you negative.
     
    #11     Dec 29, 2008