What if you bought some June $65 puts instead of the May $62.5 puts? They would cost you $1.90, but you would pay for $1.68 of them with the sale of your calls. Then, in only a week and a day, you would have a $65 put protection until June 19th and you could sell some calls on your stock. If it happens not to move much between now and the time your calls expire, you might get close to $3.40 for the calls. If, on the other hand, you decide to sell the puts when your May calls expire, you might get most of your money back since they will have another month before they expire and there shouldn't be too much decay. I haven't worked out the best case and worst case scenario, but it seems more conservative to me.
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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