Don’t get Hot under the Collar, it can be a real benefit

I started a new position in $URI in after hours action on 01/23 and came in today with a plan to look for an opportunity to do additional pieces. I usually incorporate Options in my plan so I had to wait until market open.

Unfortunately the market didn’t wait for me as the stock price moved up through the $50 level in pre-market action and was running at the open. I don’t like to chase as a rule so the position size I had, well, it is what it is.

When I am in a position, and I see a potential stall point, my usual next step is to put on a Collar. Here is what I ultimately did this morning:

URI_trade

So now where do things stand? Lets take a detailed look:

  • I am long stock and short the February 52.5 Call
  • I am long the February 50/48 Put Spread
  • This was done for a credit as noted above

The move to the market close saw price fall through the $50 strike and so the key protection in the Collar kicks in: the Put Spread. Here are the current bid/ask on the pieces as of the close:

  • 52.5 Call is .35/.45
  • 50 Put is 2.00/2.15
  • 48 Put is 1.00/1.15

There are several ways to play this to expiration but for now there is no need to do anything (1 of the choices always available to the trader). The Put spread has increased in value AND the short Call has lost over a $1 since selling it – so the pullback in the stock price is offset by these two factors.

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