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Option Collar as Portfolio Insurance
Option Collar as Portfolio Insurance - Trends
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Mark grew up in Brooklyn and in an earlier life, earned a PhD (chemistry) from Northwestern. After several years as a research chemist, in Dec 1976 he moved to Chicago to trade options. Over the next 23 years, he was primarily a CBOE market maker, but also worked as a risk manager, and coached new traders. He left the CBOE in 2000 and began a career as an educator. He’s published three books and numerous magazine articles. Mark recently authored The Rookie’s Guide to Options and he approached me with a novel guest post idea. You don’t normally associate options with passive investing but he is going to explain how ...
This may sound complex, but the effect of a collar is simple enough. Your stock market returns are limited to a range. If stock losses are too deep, the purchased put options compensate you to limit your losses. If stock market returns are very high, the call options you sell limit your gains. You may wonder why anyone would bother with the call option part if they limit your gains. The answer is that you get cash from selling the call options that you can use to buy the put options. So, in trade for the guarantee that you won’t lose too much, your gains are limited as well. The ... Read More
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OPTION COLLAR AS PORTFOLIO INSURANCE
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