100 trading strategies
- Thread starter veluri1967
- Start date
A collar is an options trading strategy that is constructed by holding shares of the underlying stock while simultaneously buying protective puts and selling call options against that holding. The puts and the calls are both out-of-the-money options having the same expiration month and must be equal in number of contracts.
Technically, the collar strategy is the equivalent of a out-of-the-money covered call strategy with the purchase of an additional protective put.
The collar is a good strategy to use if the options trader is writing covered calls to earn premiums but wish to protect himself from an unexpected sharp drop in the price of the underlying security.
Graph showing the expected profit or loss for the collar strategy option strategy in relation to the market price of the underlying security on option expiration date.
The formula for calculating maximum profit is given below:
Max Profit = Strike Price of Short Call - Purchase Price of Underlying + Net Premium Received - Commissions Paid
Max Profit Achieved When Price of Underlying >= Strike Price of Short Call
Limited Risk
The formula for calculating maximum loss is given below:
Max Loss = Purchase Price of Underlying - Strike Price of Long Put - Net Premium Received + Commissions Paid
Max Loss Occurs When Price of Underlying <= Strike Price of Long Put
Breakeven Point(s)
The underlier price at which break-even is achieved for the collar strategy position can be calculated using the following formula.
Breakeven Point = Purchase Price of Underlying + Net Premium Paid
Example
Suppose an options trader is holding 100 shares of the stock XYZ currently trading at $48 in June. He decides to establish a collar by writing a JUL 50 covered call for $2 while simultaneously purchases a JUL 45 put for $1.
Since he pays $4800 for the 100 shares of XYZ, another $100 for the put but receives $200 for selling the call option, his total investment is $4700.
On expiration date, the stock had rallied by 5 points to $53. Since the striking price of $50 for the call option is lower than the trading price of the stock, the call is assigned and the trader sells the shares for $5000, resulting in a $300 profit ($5000 minus $4700 original investment).
However, what happens should the stock price had gone down 5 points to $43 instead? Let's take a look.
At $43, the call writer would have had incurred a paper loss of $500 for holding the 100 shares of XYZ but because of the JUL 45 protective put, he is able to sell his shares for $4500 instead of $4300. Thus, his net loss is limited to only $200 ($4500 minus $4700 original investment).
Had the stock price remain stable at $48 at expiration, he will still net a paper gain of $100 since he only paid a total of $4700 to acquire $4800 worth of stock.
Source: world of Internet
.
Technically, the collar strategy is the equivalent of a out-of-the-money covered call strategy with the purchase of an additional protective put.
The collar is a good strategy to use if the options trader is writing covered calls to earn premiums but wish to protect himself from an unexpected sharp drop in the price of the underlying security.
Graph showing the expected profit or loss for the collar strategy option strategy in relation to the market price of the underlying security on option expiration date.
The formula for calculating maximum profit is given below:
Max Profit = Strike Price of Short Call - Purchase Price of Underlying + Net Premium Received - Commissions Paid
Max Profit Achieved When Price of Underlying >= Strike Price of Short Call
Limited Risk
The formula for calculating maximum loss is given below:
Max Loss = Purchase Price of Underlying - Strike Price of Long Put - Net Premium Received + Commissions Paid
Max Loss Occurs When Price of Underlying <= Strike Price of Long Put
Breakeven Point(s)
The underlier price at which break-even is achieved for the collar strategy position can be calculated using the following formula.
Breakeven Point = Purchase Price of Underlying + Net Premium Paid
Example
Suppose an options trader is holding 100 shares of the stock XYZ currently trading at $48 in June. He decides to establish a collar by writing a JUL 50 covered call for $2 while simultaneously purchases a JUL 45 put for $1.
Since he pays $4800 for the 100 shares of XYZ, another $100 for the put but receives $200 for selling the call option, his total investment is $4700.
On expiration date, the stock had rallied by 5 points to $53. Since the striking price of $50 for the call option is lower than the trading price of the stock, the call is assigned and the trader sells the shares for $5000, resulting in a $300 profit ($5000 minus $4700 original investment).
However, what happens should the stock price had gone down 5 points to $43 instead? Let's take a look.
At $43, the call writer would have had incurred a paper loss of $500 for holding the 100 shares of XYZ but because of the JUL 45 protective put, he is able to sell his shares for $4500 instead of $4300. Thus, his net loss is limited to only $200 ($4500 minus $4700 original investment).
Had the stock price remain stable at $48 at expiration, he will still net a paper gain of $100 since he only paid a total of $4700 to acquire $4800 worth of stock.
Source: world of Internet
.
Strategy for Big Capital Traders
This strategy is for the people who have an iron heart and big capital base. Suggested capital is Rs.10-14 lakhs.
A swing trade setup with a base position of 4 lots and adds with 2 and 1 lot consecutively. So, a maximum of 7 lots trade in Banknifty. Its a system of type "Always in the Trade".
You must count your profits or losses after executing 40-50 trades. Donot go by win/loss ratio for this strategy because it has a poor one...may be less than 20%. But the winners will not only wipe out whole of the losses but also bring in windfall profits. My suggestion is that consider only profit factor for this strategy. It has 1.63 profit factor for the last 5 months in banknifty. It has generated 40% return calculated on Rs. 10 lakh capital.
Will be right back.
This strategy is for the people who have an iron heart and big capital base. Suggested capital is Rs.10-14 lakhs.
A swing trade setup with a base position of 4 lots and adds with 2 and 1 lot consecutively. So, a maximum of 7 lots trade in Banknifty. Its a system of type "Always in the Trade".
You must count your profits or losses after executing 40-50 trades. Donot go by win/loss ratio for this strategy because it has a poor one...may be less than 20%. But the winners will not only wipe out whole of the losses but also bring in windfall profits. My suggestion is that consider only profit factor for this strategy. It has 1.63 profit factor for the last 5 months in banknifty. It has generated 40% return calculated on Rs. 10 lakh capital.
Will be right back.
We will wait for veluri ji to give more details about the strategy trend deatails
I am just giving my views about collars and one can decide based upon the Technicals/ATR.
Collars are for intermediate range traders - That means the script should be in a range to construct a collar / or to be constructed in the direction of the main trend or when one expects expansion of volatility in the direction of main trend or break out of range.
A collar can used when one is Mildly bullish or Mildly bearish.
Say Long futures
Buy ATM put
The above two is nothing but a ATM call.
Then write a OTM call.
So this is nothing more than a covered call/Bull call spread.
If Short Futures
Buy ATM call.
Sell OTM put.
Then it is a Covered Put/Bear Put Spread.
So when to construct a Bullish collar - when one thinks the price is in a range and at low of the range or expects trend to be mildly bullish or the person is risk averse in buying naked call.
Exactly the opposite for Bearish collar.
If the main trend is bearish there is no point in keep on constructing bullish collar rolling over the futures.
Like wise if the trend is bullish there is no point in keep on constructing bearish collar rolling over the futures.
I am just giving my views about collars and one can decide based upon the Technicals/ATR.
Collars are for intermediate range traders - That means the script should be in a range to construct a collar / or to be constructed in the direction of the main trend or when one expects expansion of volatility in the direction of main trend or break out of range.
A collar can used when one is Mildly bullish or Mildly bearish.
Say Long futures
Buy ATM put
The above two is nothing but a ATM call.
Then write a OTM call.
So this is nothing more than a covered call/Bull call spread.
If Short Futures
Buy ATM call.
Sell OTM put.
Then it is a Covered Put/Bear Put Spread.
So when to construct a Bullish collar - when one thinks the price is in a range and at low of the range or expects trend to be mildly bullish or the person is risk averse in buying naked call.
Exactly the opposite for Bearish collar.
If the main trend is bearish there is no point in keep on constructing bullish collar rolling over the futures.
Like wise if the trend is bullish there is no point in keep on constructing bearish collar rolling over the futures.
Collar A : + stock/future, + ATM put, -OTM call
Collar B : - stock/future, + ATM call, -OTM put
If in the same account two collars are built, long and short of stock will cancel out and one will be left with
Collar A+ B= + ATM call, +ATM put, -OTM call, -OTM put
Will this serve our purpose of two collars or one has to have two trading accounts.
Am I right.
Thanks
Rajesh
Collar B : - stock/future, + ATM call, -OTM put
If in the same account two collars are built, long and short of stock will cancel out and one will be left with
Collar A+ B= + ATM call, +ATM put, -OTM call, -OTM put
Will this serve our purpose of two collars or one has to have two trading accounts.
Am I right.
Thanks
Rajesh
Last edited:
Though this strategy (Bullish collar ) looks like easy money one need to back test thoroughly before implement it. Since Buy and hold easy. This type strategy require active monitoring and also involves capital gain tax comparing to equity holding (ETF Like Nifty Bees )
Below image shows my back test results(done on 2012) on similar Strategy
you can also get full details of from this file
https://www.dropbox.com/s/a49nffgqp8qxehg/Experimenting%20Bull%20Call%20Spread.pdf?dl=0
:thumb:
Below image shows my back test results(done on 2012) on similar Strategy
you can also get full details of from this file
https://www.dropbox.com/s/a49nffgqp8qxehg/Experimenting%20Bull%20Call%20Spread.pdf?dl=0
:thumb:
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