Sunday, July 17, 2011

neutral strategy COLLAR

Example: Own stock, protect
by purchasing 1 put and selling
1 call with a higher strike
Market Outlook: Neutral
Risk: Limited
Reward: Limited
Increase in Volatility: Effect
varies, none in most cases
Time Erosion: Effect varies
BEP: In principle, breaks even
if, at expiration, the stock is
above/(below) its initial level by
the amount of the debit/(credit)

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