Intermediate Option Strategies

Question 1

Collar

Answer 1

• Long stock, long put, short call
• Maximum profit = [(strike price of call option – original purchase price of stock) x number of stocks) + [(call option premium – put option premium) x number of contracts x 100]
• Maximum loss = [(original purchase price of stock – strike price of the put option) x number of stocks] + [(put option premium – call option premium) x number of contracts x 100]
• Break-even point = original purchase price of stock + put option premium per share – call option premium per share

Question 2

Collar call payoff diagram

Answer 2

Question 3

Diagonal collar

Answer 3

• Short call with near-term maturity, long call with long-term maturity
• Maximum profit = option premium received from selling near-term call option - option premium to buy long- term call option + expiration value of long-term call
• Maximum loss = initial debit required to enter into the strategy

Question 4

Diagonal collar payoff diagram

Answer 4