The options collar would be done at support or resistance, or after a price momentum failure – and is intended to give profit protection during a retrace, while holding the trade for the swing to continue its directional move. I now want to go back over some of the iwm etf trades that were discussed, and as we go through them also talk about etf position trading management. Additionally, we will look at the mechanics of the options collar protection in our options trading spreadsheet. And now you see the benefit of the options collar for protection – it will let you lock in a minimum amount of profit if there is a move to support, while allowing the trade the room to retrace and resume. Let’s look at the options spreadsheet and compare the stock only trade to a stock and options collar combination. Note that I am showing this as a 100 share trade only, so the partial profits from an actual trade won’t be added – this makes no difference to the comparison of the 2 trades.
Now I want to discuss the options trades that were done. They are based on our stock and options combination strategies for selling options that can be turned into ratio short spreads – they do have an option collar characteristic as well.
Now look at the profit graph and compare it to the 112.90 IWM buy – if only the stock was traded and no options collar had been done.
Now, however, labor shortages, higher prices for homes and falling revenues of suppliers have put a price lid on companies in the industry and the homebuilding ETF. Selling has consistently outpaced buying volume, and the 50-day moving average is just a fraction from crossing through the 200-day moving average, which would result in a death cross — a long-term bearish signal. It's important to remember that you don't always have to pay the offer or sell the bid when you trade options.
The good thing is that nowadays with so much competition for option volume (and with $1 strikes, 0.01 price increments, etc), you are much more likely in an example like the above to get filled on a limit order below the ask or above the bid.
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