Like you've said, in this case both the call and the put have served their purpose, and as has been clarified in another response, Income of $132 has been made...
As long as stock is still between my parameters in the "original collar" the plan would be to continue collaring this stock with the same strikes and generating additional income. As long as your outlook for the stock has not changed this seems like a nice way to generate income while having a DEFINED Profit & Loss.
I'm sensing I'm missing something, i hope i'm not coming off too ignorant here, just trying to learn. Thank you all for your replies!
--- In ConservativeOptionStrategies@yahoogroups.com, "Louis" <loupi3@...> wrote:
>
> 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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