Steven Sears, who writes the excellent Striking Price, for Barron's, devoted a recent column to the collar spread. And the part that's so amusing for me is that the term 'collar' is never mentioned. Nevertheless, the message was once again made available to a large audience of investors.
I appreciate how well he introduced the topic:
"One of the joys of adulthood is looking at your stock portfolio and feeling good about how much money you have.
One of the horrors of adulthood is experiencing a vicious decline in
portfolio balances and knowing you could have done something to prevent
The advice offered by an investment-advisory firm president is to protect a diversified stock portfolio with the purchase SPX put options. Then, to offset the cost of owning those one-year puts, the client is advised to sell near-term, out of the money (OTM) – call options. The plan is to write those OTM calls each month – and by year's end, the call premium should be more than enough to offset the entire cost of the puts. What a neat idea! How many times have I said the same thing in this blog?
I pleased to see this idea repeated for the individual investor to read. Maybe it will sink in one day.
Leave it to Dr. Brett Steenbarger, psychologist, trader, trading coach and blogger (TraderFeed) to make the point so that it becomes obvious:
"Someone recently asked me a great question: 'Would you encourage your children to pursue trading as a living?'
answer was immediate: "No, I wouldn't encourage it. If they wanted to
try and showed some aptitude for it, I wouldn't stop them, but I would
never push the idea. The odds of sustained success are simply stacked
too high against most traders."
me, the question was no different from asking, 'Would you encourage
your children to go to Hollywood and pursue movie acting?' I wouldn't
stop a child that had shown acting talent and that had the drive to
succeed, but I would never encourage a kid to spend time and money
simply to give a fantasy a shot.
therein lies a world of difference: You would never send your child to
L.A. to pursue an acting career if the child had never so much as
starred in a high school play. Still, young traders pursue trading
without truly understanding how markets work and without observing and
trading markets on their own. Theirs is a fantasy, not a career plan."