Collars impose upside limitation of profits to the equity portfolio. That would be the major drawback against the primary objective of investing/trading, that causes a problem whether an astute investor/trader wants to use collars or not. Common investors/traders, who earn only small returns, could not afford to use collars. My personal guess is the practical use of collars would be usually limited to coporate hedging space. Besides, the short (index) calls sold after getting into ITM just before explosive movements would have a rare/unusual risk of early exercise/assignment (of the short index options sold), that will cause an unexpected cash flow problem (as basically we don't want our cash sitting idle awaiting for this kind of rare/unusal - but realistic - sanario, practically) due to the margin on futures required for assignment. That would also leave the investor/trader (of exercised collars) an unwanted net position technically being long puts (due to the portfolio of stocks and the sold futures offsetting each other) during the day of bullish market movement. Sleeping well and peaceful is important to health! I think hedging can be simple (as currently proposed here) and can save good money if done correctly, or complex and cost great money if incorrectly. This thread is trying to prove (with live calls) whether the currently proposed Simple strategy here can Save good money (plus Safety/Peace). Just my 2 cents!
McMillian (Options as a Strategic Investment, page 653): "Hedging The Primary economic function of futures markets is hedging, - taking a futures position to offset the risk of actually owning the physical commodity." Smithson has a book "Managing Financial Risk" of total 663 pages talking about financial risk and hedging with derivative products. Chapter 7 (pages 116-139) is about hedging with futures, and Chapter 12 (pages 241-265) about hedging with options. Record's book "Currency Overlay" is about overlay hedging. Chapter 6 (pages 105-124 ) is about passive overlay management, and Chapter 10 (pages 205-238) about active overlay management including discussions of technical analysis and options trading methods/models. CFA also published (year 1993) a book "Active Currency Management" by Ramaswami. On its last page (#49) Summary: "Because options are Informationless strategies, and the currency market is shown to contain significant trends, which benefit option-type convex payoff patterns, option-based strategies should perform well, even when viewed as active currency management strategies." Hopefully the ongoing proof of this equity overlay program will have a similar conclusion.
What I meant above was this program is not designed for general retail investors/traders who are not QEPs (Qualified Eligible Participants/Persons). Practically QEPs (almost All ETers) as retail investors/traders are welcome to directly subscribe our signal service on C2, without channeling or going through any brokers.
OddTrader, can you send me a message about your C2 system? I would like to follow your system. I don't mean subscribing yet; sorry; just follow the performance of the system. Thanks.
Currently we are still thinking about a proper name of this overlay system. For our 1st system on C2, we changed 4 times before officially activating it. But C2 recorded all the names in the history. It's funny. The 4 old names before officially activating the system should be totally eliminated from the C2 site. You should be able to search our systems later under the options systems category, I believe. Actually there should be not many C2 systems buying long options, as far as I know. Due to our signals/trades are delayed by seven days, you may even find our signals posted here on ET earlier than C2.
http://collective2.com/forum?when-will-my-system-appear-in-search " You must have 7 closed trades to appear in the Grid." Propably it would take a very long time starting to see our systems and their performance on C2! LOL.
The C2 fill looks `honest'... that put was 1.18-1.19 or 1.18-1.20 during that minute of trading. BTW it's now 0.26-0.27.
The trading loss will be used to calculate average weekly cost for equity hedging, rather than for speculating. For speculating and chasing profits, there is a separate thread about a Quick Trade system (which has an open position of Long Call this week, currently making a small profit as registered on C2).