This is one of the basic strategies as it involves entering into one position i.e. buying the Call Option only. Any investor who buys the Call Option will be bullish in nature and would be expecting the market to give decent returns in the near future.
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 ..
Underlying Asset close above from the strike price on expiry.
Strike Price of Short Call - Purchase Price of Underlying + Net Premium Received
Maximum Loss Scenario
Premium Paid
Purchase Price of Underlying - Strike Price of Long Put - Net Premium Received
Risk
Limited
Limited
Reward
Unlimited
Limited
LONG CALL Vs THE COLLAR - Strategy Pros & Cons
LONG CALL
THE COLLAR
Similar Strategies
Protective Put
Call Spread, Bull Put Spread
Disadvantage
• In this strategy, there is not protection against the underlying stock falling in value. • 100% loss if the strike price, expiration dates or underlying stocks are badly chosen.
• Limited profit. • A trader can book more profit without this strategy if the prices goes high.
Advantages
• Less investment, more profit. • Unlimited profit with limited risk. • High leverage than simply owning the stock.
• 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.
