The loss on the stock will be the purchase price of the stock minus the strike price of the put option as you will exercise at that price plus the net premium paid or received. The profit on the stock will be the strike price of the call option minus the purchase price of the stock as you will be exercised and deliver at the strike plus the net premium paid or received.

Covered calls are becoming very popular strategy for investors who already own stock.

They sell out-of-the-money call options at a price that they are happy to sell the stock at in return for receiving some premium upfront. If the stock doesn't trade above this level, the investor keeps the premium. This increases the cost as you will have to outlay more to purchase the put and hence lowers your overall return.

My comment might be a little off the subject but I thought this might be the best place to ask. My question is what can I do with these? Is there a strategy fit fot these kind of situations?

Hi Arthur, Apologies for the delay in responding!

The Collar Strategy Explained | Online Option Trading Guide

But this is no more of risky position than holding the stock outright as your position resembles a synthetic long stock. If you "sold" the stock you would be short a collar.

Hey, I bought a Nov 2. Got a few of questions: Thanks for your responses I just discovered your site today I would have made a better trade had I found it earlier. If you wanted to put on a collar you will need to buy some stock first and then also sell call options to offset the purchase of the puts. However, with a collar you will still have some downside risk to consider, which is the maximum loss on the trade if the market sells off. If you want to buy stocks and are looking for downside protection then you could also look at a Protective Put.

Would you recommend a collar option strategy in this case?

Bull Call Spread Explained | Online Option Trading Guide

Thanks for your help! Yes, I see that the description above can be a bit confusing.

Options Strategy: The bull call spread

I've modified it so it is a little clearer. So, the purchase price of the stock minus the K1 as you will exercise and sell the stock at that price plus premium received or less premium paid. Hi Peter, First thanks for this very helpfull website. I can't understand when you say that the maximum loss would be: Thanks for your reply. The graph is correct - a collar just has a similar payoff profile as a bull spread. You can use my option pricing spreadsheet and build the individual legs to verify if you like.

Hi Peter, Am I right if I say that a Collar and a Protected Covered Call section Covered Call are the same product or there is a difference?

The x-axis represents the stock price and the y-axis shows the profit and loss. Hi Phil, by the definition of a collar the options have to belong to the same expiration date. I actually do not know what this type of spread would be called. I checked Natenburg's Option Volatility and Pricing and couldn't find it mentioned there either.

I would guess that it's just a type of diagonal spread. I'm not sure about your second question. Do you mean can you still sell call options prior to the expiration of the 6 month put option? If the call I sell and the put I buy do not have the same expiration month, is it still a "collar"?

If I buy a six month put, can I not get the premiums on two three month calls during that time? Optionable underlyings have more than one expiration month. For example, at the time of writing, MSFT have electronic tradable options that expire January Anyway, the graphs are just for illustration purposes.

Is that explained anywhere? Under components you say, that we should long OTM Put option, however under characteristics is mentioned that it is ideal for the investors who own the stock and are looking for minimise their downside risk by WRITING put option. I guess instead of WRITING put uption it should be buying the put option.

Characteristics As you can see from the above payoff chart, a collar behaves just like a long call spread.

It is suited to investors who already own the stock and are looking to: The problem with covered calls is that they have unlimited downside risk. The solution to this is to protect the downside by buying an out-of-the-money put.

Collar

Bullish Long Call Short Put Long Synthetic Call Backspread Call Bull Spread Put Bull Spread Covered Call Protective Put Collar Bearish Short Call Long Put Short Synthetic Put Backspread Call Bear Spread Put Bear Spread Neutral Iron Condor Long Straddle Short Straddle Long Strangle Short Strangle Long Guts Short Guts Call Time Spread Put Time Spread Call Ratio Vertical Spread Put Ratio Vertical Spread Long Call Butterfly Short Call Butterfly Long Put Butterfly Short Put Butterfly.

Comments 23 Mc Clane December 30th, at 2: Peter October 29th, at 4: Arthur October 9th, at 3: Peter August 13th, at 7: Peter April 25th, at Peter November 17th, at 4: Sam November 17th, at 4: Pierre June 22nd, at 8: Thank you Peter December 17th, at Phil August 19th, at 1: Peter July 24th, at 9: JH June 10th, at 3: Peter April 29th, at 8: Thanks for your response: Admin August 23rd, at 6: I've changed the typo as indicated.

Nitesh August 22nd, at 2: Thank you Add a Comment Name.