Michael,
I don't think it's quite that simple.
For instance: CAT is $63.50 at expiration. Your put expires worthless, although it served its purpose by affording you downside protection.Your call also expires worthless.
Your cost for the CAT is $66.30 (67.62-1.68+.36).You have a loss of $280.You can consider the collar spread to have diiminished what your loss would have been, but nevertheless IMO it's a loss.
This doesn't consider the possibilities of rolling or the possibility of having used different strike prices at entry.
I guess there are different ways of looking at it, but I do think you have to factor in the performance of the stock.
Lou
--- In ConservativeOptionStrategies@yahoogroups.com, "Michael S" <shhhhh22@...> wrote:
>
> 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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