How To Hedge Using Collars

Discussion in 'Options' started by archon, Jul 2, 2008.

  1. archon

    archon

    http://www.theoptionsinsider.com/tradingtechnology/?id=904

    Came across this the other day and it seemed pretty relevant given the current market conditions. A lot of people are probably looking for ways to hedge and protect their stock portfolios these days. This article lays out three ways to do it:

    A "no-cost" collar

    A "bearish" collar

    and a "diagonal" collar.

    Enjoy...

    How To Hedge Your Stock Positions Using Collars

    Posted on 7/1/2008 in Trading & Technology by Lawrence D. Cavanagh

    It is well known that you can hedge a stock by either buying a put or by writing a call on it. What is not so well known is that you can combine these two strategies. This long stock + short call + long put combination is known as a "collar."

    As we shall show you with four different variants, this combination is really very flexible. In a coming report, we will show you the advantages and disadvantages of a different hedge, the 1-to-1 bear spread.

    Hedging With A "Collar"
    Usually, when setting up a collar (long stock + short call + long put), you write a near-the-money call on stock that you own and buy an out-of-the-money (i.e. lower strike) put on this same stock. On a net basis, if the call strike price is closer to the stock price than put strike price, you will take in premium....

    full article here:
    http://www.theoptionsinsider.com/tradingtechnology/?id=904
     
  2. nice article. thanks.