Level 2 – Option Trading Guide to Collars: Learn to Protect Your Stocks Table of ContentsRandom Walk Trading, LLC.2018-11-05T21:20:19-05:00
Table of Contents
CHAPTER 1 – WHAT SHOULD I TRADE
Section 1 – What are the products to choose from
Section 2 – Will any form of analysis help my odds of success
CHAPTER 2 – HEDGING WITH MARRIED PUTS AND COLLARS
Section 1 – Introduction and characteristics
Section 2 – Hedging an individual stock
Section 3 – Owning stock in conjunction with a put
Section 4 – What about the cost of the insurance
Section 5 – Method 1 – Married put
Section 6 – Method 2 – Collar
CHAPTER 3 – MARRIED PUTS AND COLLARS – CRITERIA
Section 1 – Step 1 – Make a list
Section 2 – Step 2 – Are these stocks all going to be hedged individually, or are there any in the list that can’t be sold out for one reason or another?
Section 3 – Step 3 – If applicable, segregate all stocks into two accounts labeled equity hedge and index hedge candidate(s)
Section 4 – Step 4 – Determine the number of puts one needs to purchase to hedge the stock position(s) with equity puts (or collars)
Section 5 – Step 5 – Using the first stock selected to be hedged, pull up an entire option chain for that underlying starting with the first expiration month that has at least four weeks until expiration
Section 6 – Step 6 – Determine how far OTM the put needs to be to provide the best statistical balance between cost and protection
Section 7 – Step 7 – Determine which strike put to purchase based on the numbers calculated in Step (6), the stock’s current price, and an analysis of risk/reward (if the situation calls for it)
Section 8 – Step 8 – This step is used if no obvious strike price is found in Step 7
Section 9 – Step 9 – Decide if you are going to collar the underlying
Section 10 – Step 10 – Choosing the strike to sell when doing a collar
Section 11 – Step 11 – Choosing the number of calls to sell in the collar
Section 12 – Step 12 – Enter the trade electronically or verbally
CHAPTER 4 – HEDGING A PORTFOLIO WITH THE INDEX OPTIONS
Section 1 – Step 1- Make a comprehensive list of the stocks you are looking to hedge
Section 2 – Step 2 – Make sure that the stocks you have included are designed to be hedged
Section 3 – Step 3 – Calculate the total dollar figure of stocks to be hedged
Section 4 – Step 4 – Find the index that most closely matches your portfolio of stocks
Section 5 – Step 5 – Calculate the dollar value of the index each put option protects
Section 6 – Step 6 – Divide the total value of your portfolio by the amount each index option protects as found in Step (5)
Section 7 – Step 7 – Choose the expiration month
Section 8 – Step 8 – Determine the strike price to purchase
Section 9 – Step 9 – If the PS2P number is in between strikes, you can interpolate, round up, round down, or create a synthetic strike
Section 10 – Step 10 – Find the cost of the put
Section 11 – Step 11 – Look for the corresponding call for the collar
Section 12 – Place your trade
Section 13 – Monitor and manage the position
CHAPTER 5 – HEDGE ADJUSTMENTS FOR STOCK OR INDEX COLLAR
Section 1 – Reasoning for ratcheting (dynamic hedging)
Section 2 – Stock (index) advances/moves up
Section 3 – Stock (index) declines/moves down
Section 4 – Stock stays flat
CHAPTER 6 – MARRIED PUT VS COLLARS
Section 1 – Review from Chapter 3 – Married put criteria
Section 2 – Deviation from previous steps
Section 3 – Rolling an index put or put spread
CHAPTER 7 – SOFTWARE AND STRIKE SELECTION
Section 1 – Example #1: IBM
Section 2 – Example #2: GOOG
Section 3 – Example #3: CSCO
Section 4 – Example #3: AAPL USE SOFTWARE
CHAPTER 8 – LEAPS AND THE SUBJECT OF COLLARS
Section 1 – Benefits and risks
Section 2 – Leaps as a substitute for stock