Collar Options Strategy combines Swing trading with Options Trading. It helps Swing traders make money even if the stock does not give good positive movement as expected by the trader. He can make passive income without selling the stock. It also protects Swing Traders from possible huge loss due to market melt down scenarios.
This strategy can also be used by Investors as possible protection from downside of the stock as well as generate revenue from the holding in case of sideways movement. In absence of it your portfolio stock will remain non profitable if it goes into sideways movement or there is down turn due to some unforeseen situation.
This technique is similar to Covered Call technique with slight difference. Covered call does not have any PUT option bought so there was no insurance in case of market or stock meltdown.I have already covered Covered Call in previous articles. So you can read that in case not done already. Collar technique is combination of below techniques
- Selling Call
- Buying Put
- Both of them should be of same Expiry
- Both of them should be of same number of lots
- You should also have the stock
You can watch either the English Video or Hindi Video to understand the strategy in details.If you are new to Options trading then I would suggest you to watch or read the Getting Started tutorial on Options . That will help you understand the strategies as well.The only caveat of this technique is that you need to have that stock in your portfolio and that stock should have Options trading available for it. This means it should be applicable only for F&O stocks.
English Video
Hindi Video
Conclusion
This strategy requires you to have stock in your holding. That is the primary requirement. It also has some protective measure which is not present in Covered Call. It protects you from market melt down. This makes it more complete and protective technique which insulates from unwanted events.
This is the first technique which is combination of more than two techniques. From this point on all the future techniques will be combination of more than two techniques. So if you have not covered earlier videos or tutorials then it is good time to revisit them else next set of articles may become difficult for you.
The next set of articles will have more complexity and are robust. They are the ones which insulates you from extra loss while minimizing the profit to some extend. So to become good Options trader you need to have understanding of those advanced techniques.
Second important thing is with Collar technique you need to understand when you should get rid of your holding. Every technique has some pros and cons so you need to understand those positives and negatives well before making a trade. Presence of these techniques debunks the myth that Investors and Traders do not need to have idea of derivatives market. To maximize profit you need to have idea of most things as it will improve you chances of making profit or maximize returns over the years. I have already discussed why you need to combine trading and investment for best results. You need to read that article to know more on the topic.