Using an Option Collar in 3D Systems

There are good opportunities each week to put an Option Collar on a position – and this week is no exception. The example I will use today is in $DDD – a pullback buy that I entered on October 1, 2012.

Here are a few messages from my stream leading up to now:

This last message is the real key to putting the “polish” on the trade. The stock has had a nice move up, now it is time to protect the gains. Some traders use a stop, and I do a lot of that myself, but one tool I use frequently is Options. In this case, I sold the October 40 Call for $1.25 to create a Covered Call position. This caps my gain at $41.25 at October expiration.

Now what?

Well the next step is to continue monitoring the position looking for a nice push up – to then buy a downside Put as close to the current strike as possible with the credit I received. With price currently sitting at $36.75 the best choice is the October 35 Put (currently at a bid/ask of .85/.90).

So I can pay $.90 here to buy this 35 Put, keep $.35 in premium, and let the position just run.

Leave a Reply

Your email address will not be published.