Ring around the collar

I have received a few inquiries today about protection ideas for a CF (CF Industries Holdings Inc) long position. There are certainly a few different paths to take here, but I thought I would discuss the Collar.

If you are currently long and want to have some downside protection for the long position in CF, consider the following:

1) Sell the Oct 210 call (currently at 5.90)

2) Buy the Oct 175 put (currently at 7.65)

This will cost you a debit of 1.75 (less than 1% of the underlying) of the current 191 price.

So how does this work? Well for starters your gain is capped above the 210 strike price on the call (19 bucks from here). Horrible I know, just a 10% gain from here, lol.

More importantly though, owning the downside put keeps you protected from a host of potential downside scenarios (stock and/or market related).

Happy Trading.

2 thoughts on “Ring around the collar

  1. Pingback: Collared | 1nvestor

  2. Hey I discovered your site by mistake when i was searching Google for this matter, I must say your page is very helpful I also seriously like the style, its great!

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