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
A Strangle is similar to Straddle. In Strangle, a trader will purchase one OTM Call Option and one OTM Put Option, of the same expiry date and the same underlying asset. This strategy will reduce the entry cost for trader and it is also cheaper than straddle. A trader will make profits, if the market moves sharply in either direction and gives extra-ordinary returns in the ..
Lower Breakeven Point = Strike Price of Put - Net Premium, Upper Breakeven Point = Strike Price of Call + Net Premium
THE COLLAR Vs LONG STRANGLE - When & How to use ?
THE COLLAR
LONG STRANGLE
Market View
Bullish
Neutral
When to use?
It should be used only in case where trader is certain about the bearish market view.
This strategy is used in special scenarios where you foresee a lot of volatility in the market due to election results, budget, policy change, annual result announcements etc.
Lower Breakeven Point = Strike Price of Put - Net Premium, Upper Breakeven Point = Strike Price of Call + Net Premium
THE COLLAR Vs LONG STRANGLE - Risk & Reward
THE COLLAR
LONG STRANGLE
Maximum Profit Scenario
Strike Price of Short Call - Purchase Price of Underlying + Net Premium Received
Profit = Price of Underlying - Strike Price of Long Call - Net Premium Paid
Maximum Loss Scenario
Purchase Price of Underlying - Strike Price of Long Put - Net Premium Received
Max Loss = Net Premium Paid
Risk
Limited
Limited
Reward
Limited
Unlimited
THE COLLAR Vs LONG STRANGLE - Strategy Pros & Cons
THE COLLAR
LONG STRANGLE
Similar Strategies
Call Spread, Bull Put Spread
Long Straddle, Short Strangle
Disadvantage
• Limited profit. • A trader can book more profit without this strategy if the prices goes high.
• Require significant price movement to book profit. • Traders can lose more money if the underlying asset stayed stagnant.
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.
• Able to book profit, no matter if the underlying asset goes in either direction. • Limited loss to the debit paid. • If the underlying asset continues to move in one direction then you can book Unlimited profit .
