Dom,
I agree with the gist of your post. I believe many people would simply close the whole position out if it goes south. In fact, that's what I tend to do. Earlier in my trading career, however, I didn't take defensive action and got into some real bad sitiations holding stocks that were underwater for too long. Hence, my interest in protective puts.
Michael
www.safe-options-
--- In ConservativeOptionS
>
> Michael - Interesting question. You are probably correct.  I think most people do not "collar" a position for several reasons:
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> When you get into a covered call position, it is because you want income, and because you are neutral to positively biased towards that security. Collaring the position with a protective put means that you are now giving income away, and also that you have suddenly developed a bearish bias. In that case, why not just close the entire covered call position?
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> Further, if you are interested in holding a stock long enough to qualify for the lower long term capital gains tax rate, a protective put will reset your calendar clock to zero in the eyes of the IRS, nullifying any time that you may have held the security thus far.
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> In my mind it is much better to either close out the covered call position, or if you feel that the security will outperform the market on a relative basis, hedge your covered call positions with puts on a relevant market index.
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> Regards,
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> Dom Brunone
>
> --- On Mon, 2/8/10, optionsmike <michael@...
>
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> From: optionsmike <michael@...
> Subject: [ConservativeOption
> To: ConservativeOptionS
> Date: Monday, February 8, 2010, 8:17 PM
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> Â
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> All,
> A question for the group. Does anyone in the group who uses covered calls ever collar the call with a protective put? My impression is that not too many people do.
>
> Michael
> www.safe-options- trading-income. com
>
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