2007 Morning answers imply that collars ( which involve sale and purchase of options ) do not involve leverage.
I thought option or futures were leveraged instruments, no?
got fooled作者: oneboy 时间: 2011-7-13 15:17
With a collar you hold the underlier plus a bull spread hence no leverage. A bull spread standalone does use leverage. Agree?作者: bkballa 时间: 2011-7-13 15:17
you sell a call, buy a call. you get less for the sell piece than what you spend the buy piece ... wouldn't call that leverage. just a negative investment position. you need not necessarily borrow.
CP作者: pennyless 时间: 2011-7-13 15:17
A collar is fully collateralized by the underlier position.作者: Zestt 时间: 2011-7-13 15:17
Ok I buy that. Thanks作者: Iginla2011 时间: 2011-7-13 15:17
jbaphna Wrote:
-------------------------------------------------------
> With a collar you hold the underlier plus a bull
> spread hence no leverage. A bull spread standalone
> does use leverage. Agree?
I thought a collar was a protective put + covered call
a bull spread is two calls or two puts
no?作者: wake2000 时间: 2011-7-13 15:17
Z
>
>
> I thought a collar was a protective put + covered
> call
>
> a bull spread is two calls or two puts
>
> no?
Yes you are correct. Collar is protective put + covered call + underlying stock.
But the Collar payoff diagram = Bull spread payoff diagram.
That is what he meant to say.作者: strikethree 时间: 2011-7-13 15:17
There is also a concept of 'no cost collar' or 'zero cost collar', where the two options entered into have exactly the same premium and hence net to zero. Note that when doing this, you do not have full control of where the strikes are as you are constrained to finding two options with same/similar premiums.
