Chapter 19. Advanced Collars[*]

[*] Chapters with more advanced content are marked with an asterisk and can be passed over by beginners during the first reading of this book.

In this chapter, we consider some variations of the standard collar trades that were presented in Chapter 18, “Collars.” These variations do introduce some additional risk with the goal of enhancing the return.

Let’s 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 2004, you are interested in holding XYZ stock for the next 14 months. Instead of buying the stock at $19 per share, the Jan (06) 10 call is used as a substitute for the stock. The Jan (06) call is priced ...

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