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
Straddle is neither bullish nor bearish strategy; it is a market neutral strategy. Here a trader wishes to take advantage of the volatility in the market. This strategy involves buying of one Call option and one Put option of the same strike price, same expiry date and of the same underlying asset. Now a trader is bound to make profits once stock moves in either direc ..
Lower Breakeven = Strike Price of Put - Net Premium, Upper breakeven = Strike Price of Call + Net Premium
THE COLLAR Vs LONG STRADDLE - When & How to use ?
THE COLLAR
LONG STRADDLE
Market View
Bullish
Neutral
When to use?
It should be used only in case where trader is certain about the bearish market view.
This options strategy is work well when and investor market view is bearish. The strategy minimizes your risk in the event of prime movements going against your expectations.
Lower Breakeven = Strike Price of Put - Net Premium, Upper breakeven = Strike Price of Call + Net Premium
THE COLLAR Vs LONG STRADDLE - Risk & Reward
THE COLLAR
LONG STRADDLE
Maximum Profit Scenario
Strike Price of Short Call - Purchase Price of Underlying + Net Premium Received
Max profit is achieved when at one option is exercised.
Maximum Loss Scenario
Purchase Price of Underlying - Strike Price of Long Put - Net Premium Received
Maximum Loss = Net Premium Paid
Risk
Limited
Limited
Reward
Limited
Unlimited
THE COLLAR Vs LONG STRADDLE - Strategy Pros & Cons
THE COLLAR
LONG STRADDLE
Similar Strategies
Call Spread, Bull Put Spread
Bear Put Spread
Disadvantage
• Limited profit. • A trader can book more profit without this strategy if the prices goes high.
• There should be continuous movement of the stock and options price for this strategy to be profitable. • Time decay hurts long option if the strike price, expiration date or underlying stock are badly chosen.
Advantages
• 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.
• Unlimited potential beyond the breakeven point in either direction . • Book your profit from highly volatile stocks without determining the direction. • Limited risk, more profit.
