A Tale of 2 Collars

One of the tactical trading tools I use is Options. I use these as a trade in and of itself, or I will incorporate them in a stock position (either to enhance returns or to protect gains). One of the important uses of Options, at least in my trading process, is in the protection of a long (or short) position by implementing an Option Collar.

I have written here on my blog frequently on this topic, but I thought I would show 2 differing scenarios that are playing out today in my positions for $SRPT & $PCYC.

Here is a quick summary:

  • I am Long $SRPT stock with a September 17.5/15 Collar (have moved up the Call strike once already from 15)
  • I am Long $PCYC stock with a September 70/65 Collar

So let’s take a look at where price stands in each of these long positions today:

Certainly seems like they are in a polar opposite positions. The $PCYC position is nearing the 70 Call strike – the gain is certainly capped there (plus the .17 credit). However, the $SRPT position continues to struggle holding the 15 level (the 15 Put is ITM at the moment).

So in one scenario, the short call is causing the gain on the position to be capped. In the other scenario, the long put from the collar is protecting the move to the downside. In this latter scenario, one could consider buying back the short 17.5 Call as that piece is likely quite profitable.

 

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