Option collar trade
While the long put lower strike in a collar position has no risk of option collar trade assignment, the short call higher strike does have such risk. When the stock price rises, the short call rises in price and loses money and the option collar trade put decreases in price and loses money. If a stock is owned for more than one year when a protective put is purchased, the holding period is not affected for tax purposes.
Options option collar trade generally do not change dollar-for-dollar with changes in the price of the underlying stock. The projections or other information regarding the option collar trade of various investment outcomes are hypothetical in nature, are not guaranteed for accuracy or completeness, do not reflect actual investment results and are not guarantees of future results. If the stock price rises, profit potential is limited to the strike price of the covered call less commissions. Fidelity Investments cannot guarantee the accuracy or completeness of any statements or data.
In the example above, risk is limited to 4. The maximum profit is achieved at expiration if the stock price is at or above the strike price of the covered call. However, if the option collar trade bearish forecast does not materialize, then the covered call must be repurchased to option collar trade and eliminate the possibility of assignment. As a result, the tax rate on the profit or loss from the stock might be affected. Certain complex options strategies carry additional risk.
This is known as option collar trade erosion. Will the put be sold and the stock kept in hopes of a rally back to the target selling price, or will option collar trade put be exercised and the stock sold? The opposite happens when the stock price falls. This happens because the short call is closest to the money and erodes faster than the long put. The statements and opinions expressed in this article are those of the author.
As Time Goes By For this strategy, the net effect of time decay is somewhat neutral. Stock options option collar trade the United States can be exercised on any business day. Please enter a valid ZIP code. In the example above, risk is limited to 4.
The total value of a collar position stock price plus put price minus call price rises when the stock price rises and falls when the stock price falls. For this strategy, the net effect of time decay is somewhat neutral. If early assignment of a short call does occur, stock option collar trade sold. Fidelity Investments cannot guarantee option collar trade accuracy or completeness of any statements or data.