Hello all,
A friend of mine long ago told me how he likes to use collars as his main trading avenue. He uses it for both income, and protection as I pointed out in a previous thread about protecting a position in ITMN after that news came out.
We have since lost touch, yet I think i'm beginning to understand how he meant obtaining income from collars. so here is a trade i'm considering and am interested in your thoughts please...
Stock: CAT
Price: $67.62
SELL 1 MAY $67.50 CALL @ $1.68
BUY 1 MAY $62.50 PUT @ $0.36
Total Investment: $6630
Maximum Profit (if stock is above $67.50 on May Expiration next week): $120
Maximum Loss (if stock is below $62.50 on May Expiration next week): -$380
Total Profit if stock is between $67.50 & $62.50 on May Expiration next week: $132
So basically in 2 out of three possible outcomes you make money. and this is very easy to roll from month to month as necessary.
So I ask again; please offer your thoughts! Look forward to continuing to read this great forum.
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