I find myself utilizing an Option Collar more and more in recent months as the market continues to have wide range moves each week. I have published several Blog posts on the use of a Collar, including how I have unwound it, and want to continue that with a post on a current position that I have in $MNST.
Summary of my trade:
- I initiated a long position in the stock, in my Long Term account, at an entry of $75.15
- I am short the July 77.5 Call
- I am long the July 72.5 Put
The above collar (#2 & #3) were put on for a debit of $.22 cents.
Currently the stock is hovering above the $67 price level. The 77.5 call is trading at a bid/ask of .85/1.05 and the 72.5 put is trading with a bid/ask of 7.10/7.40.
The trail stop on the long position hit today on the move under 70 (after a rough day yesterday as well) so what remains now is just the Collar. I will be looking to sell the put soon, once price finds some solid footing, and then will remain short the July 77.5 call.
Update: on July 10, 2012 I bought back the short July 77.5 call on $MNST for $.35 to close out the above trade. The net is as follows:
- Stock -$5.15
- July 72.5 Put sold to close for $7.40
- Short the July 77.5 sold to open at $1.95 & bought back for $.35
Net gain of $3.63 << and this only happened due to the option collar protection on the long stock position.