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Understanding LEAPS: Using the Most Effective Options Strategies for Maximum Advantage by Marc Allaire

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CHAPTER 17LEAPS Index Collars

The concept of LEAPS collars was covered in Chapter 9. For those who started with this chapter, who have forgotten the strategy, or who would like a quick review, here it is. A collar is defined as the combination of a covered write and a purchase of a protective put. For example, with IBM at $105, the purchase of the 2½-month 100 strike put and the writing of the 2½-month 115 call can be initiated for a slight debit. Because of interest rates, the collar can be initiated using the same 105 put and 115 call strike prices with 5½-month options for a credit.

We like collars, especially as they pertain to LEAPS. With LEAPS going out 17½-months and IBM at $105, you could (instead of initiating a 2½-month 100 put–115 ...

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