It’s self serving announcement time here at JayOnTheMarkets.com. Please see my option trading related article in the October 2014 of Technical Analysis of Stocks & Commodities (www.Traders.com).
The article is titled “Introducing the Open Collar” which details a slight twist on the “collar” strategy, which is mostly used by traders to limit the risk on a stock position for a period of time – while also limiting the upside potential. The “Open Collar” is an attempt to alter things enough to limit risk on the downside while also retaining unlimited potential on the upside. If you have ever considered using options to hedge a stock position or portfolio you might find this to be a useful idea (NOTE: in the interest of full disclosure, yes, my opinion is slightly biased in this case).
Jay Kaeppel
I enjoyed reading your article about open collar in stocks and commoditie. Ive been trading options for about a year and wanted to make extra income on AAPL, since I own it. I was wandering how can one lose money on an open collar? I want to sell covered calls on AAPL but I also dont want to be assigned if it goes up.
Any suggestions?
Thanks
The only way to avoid getting assigned if the stock is above the strike price at expiration is to buy back the call, typically at a loss (sorry, I don’t make the rules). One can typically lose money on an open condor if the stock declines in price. However, the point of the trade is that you would only put on the call and put if, a) you are concerned the stock will in fact decline and wish to hedge without selling the shares, and b) you can sell enough call premium to pay for the puts (while still leaving unlimited upside potential by virtue of buying more puts than the number of calls sold. Hoping that makes sense, Jay