Strategy Talk

I had some great twitter exchanges this weekend that centered around the use of strategies, how to prepare to use them, the execution of, etc. One of the things that I noticed during these exchanges is how some interpret my use of a particular strategy – and how if differs from their implementation. Not that there is anything wrong with this, was just something that stood out to me.

This got me to thinking about this: I am “blending” strategies together and creating hybrids (making it more complex, or simplifying)? To answer this, I took some time evaluating several current trades that incorporated the use of options where I had a directional bias – but instead put on a trade with a more conservative Collar (own the underlying, sell an upside Call and buy a downside Put) and let it ride.

Since I keep a Trading Journal, I reviewed my notes on these trades to see what my motivation was and why I was apparently more cautious than normal (I get feedback from time to time that I can be quite aggressive … who me?).

Was I thinking the market was topping, were we getting too extended? Although some of the goals of each trade were similar, the rationale behind putting them on in the first place is quite different. So can there be a different reason to put on a trade (i.e. buying blood & play a bounce versus normal healthy pullback so buying the dip) but a similar implementation? I say yes.

Here is a look at the trades that I reviewed in this exercise:

  • Long DECK with a Feb 80/85 collar
  • Long CREE with a Feb 26/28 collar
  • Long RCL with a 29/30 collar
  • Long PPO with a 40/45 collar

A few of these look to be called away at February expiration (price above the upside Call strike) and the others are close to that upside Call strike. Capped gains? So be it. Downside protection? Absolutely.

I hope your month is going well and thanks for reading.



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