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Collar

1) Unless stated otherwise, is one to assume a collar is cashless? 

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No.

I don’t have a practice in constructing a collar, but I think this is correct. Correct me if I am wrong.

For constructing a collar one needs to:

a) buy the share (pay X amount) ,
b) buy a put option for that share (pay Y amount),
c) sell a call option for that share (receive Z amount).

Here we have 3 cash flows. In general, far away from 0. May be Y+Z will be equal to zero, either by chance, or the investor chose put and call options deliberately to net to zero.

Think wise and act!

Collar doesn’t have to be cashless. Premium received from Call can be less or more than that paid for put protection. It can be assumed cashless if it is stated as Zero-cost collar

Does collar assume you own the stock?

Does a short collar assume you own the stock?

foshizzle wrote:

Does collar assume you own the stock?

Does a short collar assume you own the stock?

Think about it.. If you had a cashless collar with no underlying, what does that do? Just a waste of transaction cost ? Or are you in deep trouble if the underling rises or crashes?

125mph wrote:

foshizzle wrote:

Does collar assume you own the stock?

Does a short collar assume you own the stock?

Think about it.. If you had a cashless collar with no underlying, what does that do? Just a waste of transaction cost ? Or are you in deep trouble if the underling rises or crashes?

if you sell a call and buy a put you make money as the stock crashes. 

Bro. Come on.

¯\_(ツ)_/¯ It be like that sometimes.

CEO10K-DAY wrote:

if you sell a call and buy a put you make money as the stock crashes. 

Bro. Come on.

Market’s dont crash tho. The naked call wouldnt even be allowed because foshizzle doesnt have tier 3 margin trading approved!