Collar Strategy

Not necessarily, but executing as a package (combo order) is recommended. This ensures you get the desired net cost and both legs are placed. Legging in separately creates execution risk and possible margin issues.

If the stock finishes between the put and call strikes, both options expire worthless. You keep your stock at its current price, having paid zero net premium for the protection period. You can then decide to put on a new collar.

Standard options are for 100 shares, so you need at least 100 shares for one collar. If you own 50 shares, you cannot collar them with standard options. Some stocks have mini options (10 shares), but these are rare in Canada.

Yes! You own the stock, so you receive all dividends. This is one advantage of collars - you maintain ownership and dividend income while protected. Just watch for early assignment risk on deep ITM calls before ex-dividend dates.

If assigned, you sell your 100 shares at the call strike price. You keep the profit from stock cost basis to call strike. Your put expires worthless (stock was called at higher price). Assignment is not a bad outcome - you sold at your target price.

If assigned early, you sell your shares at the call strike. This is usually fine - you achieved your target sell price. If you want to keep the stock, you could repurchase (but creates tax event). Early assignment typically happens near ex-dividend or deep ITM.

Typically yes, if you want continued protection. At 7-14 DTE, evaluate: If both options OTM, you can let expire and reassess. If call ITM, decide if you want assignment or to roll. If put ITM, you likely want to exit or roll the position.

Calculate: Put-only cost = Put premium. Collar cost = Put premium - Call premium (often zero). The difference is the upside you're sacrificing. Ask: Is unlimited upside worth paying $X? If yes, buy put only. If no, use collar.

Yes - buy back the call and sell the put (close both legs). This 'unwinds' the collar. You may pay a debit or receive credit depending on how the stock has moved. After closing, you have unprotected stock again.

Since collar is approximately vega neutral (long put vega ≈ short call vega), IV changes have minimal effect on overall position value. The put gains value but the call you're short also gains value, largely offsetting.

For gain deferral: Use January expiration, ensuring any call assignment occurs in new tax year. Consider collar cost as potential capital loss. In TFSA/RRSP, no tax considerations - simplifies decision. For taxable accounts, consult a tax professional.

Ratio collars generate credit but create naked call exposure. Use when: (1) Very confident stock won't rally significantly, (2) Need income from position, (3) Have margin for naked exposure. Monitor closely - rally can cause unlimited loss on uncovered calls.

Instead of collaring each stock, consider index collar (XIU options) covering entire portfolio. Calculate portfolio beta × portfolio value = collar notional. Advantages: single position, lower commissions, simpler management. Disadvantage: imperfect correlation.

For permanent protection: Use 60-90 DTE collar, roll at 21 DTE. This balances: (1) Roll frequency (not too often), (2) Gamma risk near expiration, (3) Roll cost (mid-term optimal). Some use LEAPS puts (protection) with quarterly calls (income).

Track: (1) Return vs. unhedged stock, (2) Max drawdown comparison, (3) Assignment frequency, (4) Roll costs, (5) Put utilization (did protection save you?). Compare Sharpe ratios. Generally: collars reduce return 2-4% but volatility by 30-50%.