When you were a kid if you played these games you know they had simple rules. You move and you’re out. You get tagged and you’re out. The options world has some simple rules. If you beyond a shadow of a doubt know that a stock is going to skyrocket, you should buy a call. If it’s going to plunge you buy a PUT. So what if you’re not sure? We suggest that the trend is your friend. If you have stock positions that would cause you to have big capital gains if sold but you don’t want to see your position decline, we encourage you to learn about collars. A collar is where you play both sides and in essence you freeze your position. The downside is that if you are wrong you’ll miss the upside. Here is an example. Let’s say you hold AAPL stock . It closed last night in the $178 range. So if you sell a call with a strike price of $180 and buy a put with a strike price of $176 you played both sides. The selling of the call gets you some premium and the buying of the put spends that premium. In many cases the premium here will be close. You may be able to get the call premium equal to the put premium and thus you protected your downside for little or not cost. Remember the caveat, you may lose the upside and your stock may be called away. We will be giving our members some collars to play for positions they may hold. Stay tuned for some ideas over the next few days.
All investing involves risk, so Options Dojo can make no warranties or guarantees regarding our Sensei’s selections. Invest with an awareness of your skills, experience and risk tolerance. Options are not suitable for all investors and people can and do lose money.