There was an answered thread a while back, where a trader recommended a variation to a normal ratio spread. I'm vague on the details, but there were 3 calendar ratio pdf file strategies on his homepage with descriptons. The one spread I vagually remember, referenced going long at market price via 100 shares market,and buying a 3 month put ATM for protection. Once this married position was in place, a 6 month higher strike call with at least the same premium as our 3 month ATM, was sold to offset the put protection debit. Does this trader/website sound familiar to anyone? I appreciate the help
This is a collar position. There is noting special about the 3-month put or the 6-month call. You can choose your own puts to buy and calls to write. You may have an interest in the CBOE collar index (CLL) which tracks such a strategy for more than 21 years. I describe it here: http://tinyurl.com/m5d4a3 Mark
If you go to the CBOE micro site you can find a table of the annual percentage changes of the CBOE 95-100 collar index, the SP buy Write index, S&P 500 index, S&P 2% OTM buy write index, and the CBOE put write index. If you add up the years here's how they fared: S&P total return (1987-2007) +266% S&P 2% OTM buy write index +248% S&P put write index +247% S&P buy write index +245% and last but not least.... the CBOE 95-100 collar index +216% It came in last from 2000-2007 with a cumulative return of 21% It came in second to last from 1994-1999 Puts are insurance. Do you stand in front of a bullet? hell no. But you are damn glad you have body armour on if you get hit. I collared a position in MTB during the last bear market and it ended up a wash. I should have just got out of the position because the puts were too expensive. I think collars are overrated. And for what its worth, if a collar is the equivalent of a put spread, and a put spread is a bull market strategy, maybe Im just thick , but it seems a bit contradictory to me...
I appreciate the info Mark, I went to the website for clarity on your suggestion. This clarity finally came as a result of your examples Tom. So thank you both.
There is no disagreeing with what you say here. A collar (or put spread) has a bullish bias and does better in up markets. But, sometimes perception alters reality. A conservative investor might like the idea of writing covered calls - equivalent to the BXM index. But, he/she may also like the idea of paying for insurance. Hence adopt a BXM strategy, with a put. Sure, we know the portfolio is now the collar index, but to this (not as informed as he/she should be) investor, it's a buy-write portfolio - but one that's insured. A side note: I was unable to find anything on the CBOE 95-100 collar index. I believe you are referring to the 95-110 index. The CBOE Collar index can be modified. There is no need to sell calls 10% OTM [that's what the 110 refers to: writing calls that are 10% OTM] when ATM or 5% provides additional cash, and would increase the return of the collar index. My point is that CLL does under perform, but can be constructed to do significantly better. Mark
Is there an advantage to the long put being shorter term than the short call? Is this typically the way the strategy is done?
I am sorry, I forgot to post the link http://www.cboe.com/micro/CLL/introduction.aspx The information is in tabular form and you can see it if you scroll about half way down the page. It is the 95-110 index. Seeing the four indexes side by side is enlightening.