Collar Trade

The collar trade is the foundation of many sophisticated investors portfolios and is well worth understanding, particularly in these volatile times.

The collar trade can be thought of as simply a combination of the Covered Call and Married Put strategies.  Now why is this useful to know?  Because the married put component of the collar trade ensures that your stock has an insurance policy on it, allowing you to sell the stock at higher prices, even if the stock plummets to much lower prices.

But that’s not where the benefits end.  Think about an insurance policy that you might buy, whether car, health, home insurance, in each case you have to take money out of your pocket to pay for the insurance.  But with the collar trade, that’s not the case.  You can enjoy the benefits of the insurance without paying full cost for the insurance.  The reason for this is that the covered call component of the collar trade puts premium in your pocket which you can then use to offset the cost of the insurance.

Collar Trade Risk Graph

The collar trade is a particularly useful strategy to use when you are considering heading away on vacation and when you don’t want to monitor your portfolio extensively.  The collar trade is also very valuable when you are looking to buttress your portfolio from the wild swings in the market.

Regardless of whether you are simply looking to reduce portfolio beta, or to head away on vacation and not think about your portfolio a whole lot it is well worth investing the time and energy in knowing how to apply the collar trade successfully in any market condition.

To learn more about the Collar Trade and how to use it, please visit us at www.MarketTamer.com

Related Posts

 

MarketTamer is not an investment advisor and is not registered with the U.S. Securities and Exchange Commission or the Financial Industry Regulatory Authority. Further, owners, employees, agents or representatives of MarketTamer are not acting as investment advisors and might not be registered with the U.S. Securities and Exchange Commission or the Financial Industry Regulatory.


This company makes no representations or warranties concerning the products, practices or procedures of any company or entity mentioned or recommended in this email, and makes no representations or warranties concerning said company or entity’s compliance with applicable laws and regulations, including, but not limited to, regulations promulgated by the SEC or the CFTC. The sender of this email may receive a portion of the proceeds from the sale of any products or services offered by a company or entity mentioned or recommended in this email. The recipient of this email assumes responsibility for conducting its own due diligence on the aforementioned company or entity and assumes full responsibility, and releases the sender from liability, for any purchase or order made from any company or entity mentioned or recommended in this email.


The content on any of MarketTamer websites, products or communication is for educational purposes only. Nothing in its products, services, or communications shall be construed as a solicitation and/or recommendation to buy or sell a security. Trading stocks, options and other securities involves risk. The risk of loss in trading securities can be substantial. The risk involved with trading stocks, options and other securities is not suitable for all investors. Prior to buying or selling an option, an investor must evaluate his/her own personal financial situation and consider all relevant risk factors. See: Characteristics and Risks of Standardized Options. The www.MarketTamer.com educational training program and software services are provided to improve financial understanding.


The information presented in this site is not intended to be used as the sole basis of any investment decisions, nor should it be construed as advice designed to meet the investment needs of any particular investor. Nothing in our research constitutes legal, accounting or tax advice or individually tailored investment advice. Our research is prepared for general circulation and has been prepared without regard to the individual financial circumstances and objectives of persons who receive or obtain access to it. Our research is based on sources that we believe to be reliable. However, we do not make any representation or warranty, expressed or implied, as to the accuracy of our research, the completeness, or correctness or make any guarantee or other promise as to any results that may be obtained from using our research. To the maximum extent permitted by law, neither we, any of our affiliates, nor any other person, shall have any liability whatsoever to any person for any loss or expense, whether direct, indirect, consequential, incidental or otherwise, arising from or relating in any way to any use of or reliance on our research or the information contained therein. Some discussions contain forward looking statements which are based on current expectations and differences can be expected. All of our research, including the estimates, opinions and information contained therein, reflects our judgment as of the publication or other dissemination date of the research and is subject to change without notice. Further, we expressly disclaim any responsibility to update such research. Investing involves substantial risk. Past performance is not a guarantee of future results, and a loss of original capital may occur. No one receiving or accessing our research should make any investment decision without first consulting his or her own personal financial advisor and conducting his or her own research and due diligence, including carefully reviewing any applicable prospectuses, press releases, reports and other public filings of the issuer of any securities being considered. None of the information presented should be construed as an offer to sell or buy any particular security. As always, use your best judgment when investing.