The collar strategy is a covered call writing-like strategy where a protective put is added to the covered call trade, creating a 3-leg trade. BCI has developed 2 calculators that can be utilized with the collar strategy. This article will demonstrate how to use the BCI Collar Calculator and the BCI Trade Management Calculator.
Components of the collar trade
- Buy stock (100 share increments)
- Sell OTM call options (strike higher than current market value)
- Buy OTM put options (strike lower than current market value)
The call strike represents a ceiling on the trade (best case scenario); the put strike is the floor of the trade (worst case scenario).
Hypothetical example of the collar trade
- Buy 100 shares of BCI (long stock position) at $48.00
- Sell the $50.00 OTM call (short call position creating a ceiling on the trade) for $2.00
- Buy the $45.00 OTM put (long put position creating a floor on the trade) for $1.00
- Net option credit is $1.00
Real-life example with CROX ($123.59): 3/1/2023 – 3/31/2023 contract
BCI Collar Calculator: initial returns
Note the following:
- The initial return is 1.13%
- The maximum return with upside potential is 2.27%
- The maximum loss with the protective put in place is 2.58%
BCI Trade Management Calculator (TMC): initial returns
Note the following:
- The option premium entered is $1.40 ($6.40 – $5.00)
- The initial return is 1.13% (same as Collar Calculator)
- The max return with upside potential is 2.27% (1.13% + 1.14%)
Advantage of the TMC spreadsheet
The TMC goes much further than the BCI Collar Calculator after these initial calculations. It allows us to manage the active leg of the collar trade, the short call and then calculate post-adjusted final trade and portfolio results.
The collar strategy is a covered call writing-like trade which includes a ceiling and floor. BCI has developed 2 spreadsheets for this strategy, 1 specific for the collar (BCI Collar Calculator) and 1 that can be used for most forms of covered call writing and selling cash-secured puts (TMC).
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Your generous testimonials
Over the years, the BCI community has been incredibly gracious by sending our BCI team email testimonials sharing stories as to what our educational content has meant to their families. Moving forward, we have decided to share some of these testimonials in our blog articles. We will never use a last name unless given permission:
The last few weeks report is, well just downright profitable. Your market sentiment blurb and all the little nuances of the BLUE COLLAR REPORT save me hours.
CEO strategy ETF’s ratings were perfect, made premiums + some stock appreciation, and let some get assigned so I can start all over this week.
Sing it from rooftops in Poconos … Became a premium member.
Big profits so far April, since your report I have increased my already great covered call income by 25% at least.
SGOL made a great return and just missed getting assigned and I can sell outright for small profit or write some calls …….
Alan, I love what you do for us. I’m a broken record, but thanks, thanks thanks……..
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