19*. Advanced Collars
In this chapter, we consider some modifications of the standard collar trades that were presented in Chapter 18, “Collars.” These modifications introduce some additional risk with the goal to enhance the return.
Consider a variation of Example 1 in Chapter 18 that introduces a deep-in-the-money call with a high delta as a substitute for stock.
• Example 1A: In November 2007, you are interested in holding XYZ stock for the next 14 months. Instead of buying the stock at $19 per share, the Jan (09) 10 call is used as a substitute for the stock. The Jan (09) call is priced at $9.60 per share. This option is a good surrogate for XYZ stock because it has a delta of .95 and its time value is only $.60 per share [(10.00 + 9.60) ...
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