Collar trades are designed to be long-term trades. Trying to set up a collar trade for a period of less than 10 to 12 months will not provide the level of protection seen in the examples presented here.

Because the collar trades use LEAPS options, they generally can be structured for 22 to 24 months duration if so desired. With the longer duration, the maximum potential gain and maximum loss are typically better than the 10-to-12-month versions of the collar trade, as seen by comparing Examples 1 and 4. A major drawback to the 22-to-24-months collar trade is the cap placed on the upward price movement of the stock. If your stock is well above the strike price of the short call after 12 months, you will not be pleased that your profit ...

Get Options for the Beginner and Beyond: Unlock the Opportunities and Minimize the Risks now with the O’Reilly learning platform.

O’Reilly members experience live online training, plus books, videos, and digital content from nearly 200 publishers.