using a protective collar to protect gains

Discussion in 'Risk Management' started by stockmarketbeginner, Jan 23, 2018.

  1. Hello,

    For 1% on your money, you can protect the SPY etf, allowing you 19% upside against 20% downside. The ETF is trading at 282. So:
    Sell the 335 call
    Buy the 225 put

    This will cost about 0.9% for an entire year of protection (Jan 19 expiration). This seems like a great idea. I think the collar is wide enough so it is not considered a "constructive sale" by the IRS.

    I noticed the SPY has options going out far, but the IVV does not. This would make me want to buy the SPY, even though the expense ratio is higher (0.09% vs. 0.04%).

    Does anybody do this? It seems like a great way to guard against the once a decade meltdowns that tend to pummel people's portfolios.
  2. jys78


    I feel your numbers are off somewhere, but didn't bother to check.
  3. The numbers are rounded up or down to make the proposition look as attractive as possible but not that far off as to be misleading. Having said that - if you dont have portfolio margin you would need to block a chunk of money in your margin account to do this.