28 lines
1.6 KiB
Plaintext
28 lines
1.6 KiB
Plaintext
260 • The Intelligent Option Investor
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I show a couple of examples below that give you the flavor of the
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possibilities of the collar strategy. With these examples, you can experi-
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ment yourself with a structure that fits your particular needs. Look on
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my website for a collar scenario calculator that will allow you to visualize
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the collar and understand the payoff structure given different conditions.
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For these examples, I am assuming that I bought Qualcomm stock at
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$55 per share. Qualcomm is now trading for $64.71—an unrealized gain
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of 17.7 percent.
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Collar 1: 169 Days to Expiration
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Strike Price ($) Bid (Ask) Price ($)
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Sold call 65.00 3.40
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Purchased put 60.00 (2.14)
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Net credit $1.26
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This collar yields the following best- and worst-case effective sell prices
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(ESPs) and corresponding returns (assuming a $55 buy price):
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ESP ($) Return (%)
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Best case 66.26 20.5
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Worst case 61.26 11.4
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Here we sold the $65-strike calls for $3.40 and used those proceeds to
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buy the $60-strike put options at $2.14. This gave us a net credit of $1.26,
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which we simply add to both strike prices to calculate our ESP . We add the
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net credit to the call strike because if the stock moves above the call strike,
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we will end up delivering the stock at the strike price while still keeping the
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net credit. We add the net credit to the put strike because if the stock closes
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below the put strike, we have the right to sell the shares at the strike price
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and still keep the net credit. The return numbers are calculated on the basis
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of a $55 purchase price and the ESPs listed. Thus, by setting up this collar in |