A trader shorts or writes a Call Option when he feels that underlying stock price is likely to go down. Selling Call Option is a strategy preferred for experienced traders.
However this strategy is very risky in nature. If the stock rallies on the upside, your risk becomes potentially unquantifiable and unlimited. If the strategy
Collar Strategy is an extension to Covered Call Strategy. A trader, who is bullish in nature but has a very low risk appetite and wants to mitigate his risk will implement the Collar Strategy. Collar involves buying of stock in either Cash/Futures Market, buying an ATM Put Option & selling an OTM Call Option. The expiry dates of the op ..
It is an aggressive strategy and involves huge risks. It should be used only in case where trader is certain about the bearish market view on the underlying.
It should be used only in case where trader is certain about the bearish market view.
Strike Price of Short Call - Purchase Price of Underlying + Net Premium Received
Maximum Loss Scenario
Loss Occurs When Price of Underlying > Strike Price of Short Call + Premium Received
Purchase Price of Underlying - Strike Price of Long Put - Net Premium Received
Risk
Unlimited
Limited
Reward
Limited
Limited
SHORT CALL Vs THE COLLAR - Strategy Pros & Cons
SHORT CALL
THE COLLAR
Similar Strategies
Covered Put, Covered Calls
Call Spread, Bull Put Spread
Disadvantage
• Unlimited risk to the upside underlying stocks. • Potential loss more than the premium collected.
• Limited profit. • A trader can book more profit without this strategy if the prices goes high.
Advantages
• With the help of this strategy, traders can book profit from falling prices in the underlying asset. • Less investment, more profit. • Traders can book profit when underlying stock price fall, move sideways or rise by a small amount.
• This strategy protects the losses on underlying asset. • Risk gets limited if the price of the stocks goes down. • Trader can get ownership benefits life dividend and voting rights.
