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The Collar Strategy

Monday, October 22, 2007
Filed Under Intermediate Options Trading 

THE COLLAR STRATEGY Another protective strategy that allows for some upside capital gain while providing maximum down side protection is the collar. The collar is a combination of the covered call and protective put strategies. The collar uses a long put position in coordination with a short call position along with a long stock position.…click to read more.

NOTES ON GM General Motors Protective Put 1. After trading in a tight range for a considerable period of time with low volatility, GM’s volatility spiked in early December 2003 and the stock gapped open considerably higher, followed by another breakout gap opening several days later. 2. This second gap opening forced the stock up…click to read more.

NOTES ON WAL-MART (WMT) Protective Put 1. In mid-November 2003, Walmart opens down $1.50 to $56.25 and proceeds to trade down from there breaking the lower end of an uptrend channel. 2. Wal-mart then has a quick consolidation in mid-November around the $54.50- $55.00 level followed by a small technical rebound back to around $56.25.…click to read more.

NOTES ON AMGEN (AMGN) Protective Put 1. With the use of Technical Analysis, Amgen is identified to be poised to break down through a technical support as determined by a line drawn through three bottoms points, occurring in January 2002. 2. Then, in May 2002, the stock breaks down below the support line indicating an…click to read more.

NOTES ON RJ REYNOLDS (RJR) Protective Put 1. Up until early March 2003, RJR was in a trading range with a high of $47.50 and a low around $38.00. 2. In early March, RJR broke that low around $38.00 and traded down to around $28.00 before trading back up to the $38.00 level. It failed…click to read more.

Key Point – The protective put strategy, when used correctly, will allow investors to take advantage of some opportunities that could provide large potential gains without being exposed to the severe risks that normally accompany such risky opportunities. With the proper protection in place, the investor can profit from aggressive upside moves in the stock…click to read more.

The Protective Put Strategy can be adjusted to address the particular lean that the stock owner has at a particular time. (The term lean describes the stock owner’s perception of the directional strength of the stock.) At any given time, an investor could feel that a stock may go up or down, a little or…click to read more.

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