Upside Capped above Call Strike Price
Costless Collar
Collars offer minimum price level for sale (put) while retaining upside exposure to call strike (call).
Flexibility to select call and put strike prices to achieve desired payoffs and risk mitigation levels.
Potential Benefits
Upside participation to call strike price.
Helps protect against significant declines on a stock below put strike price.
Retain shares, dividends, and voting rights.
Risks and Considerations
Upside capped above call strike price (unless calls are bought back).
Exposure to losses down to put strike price.
Downside protection below put strike price
Covered Call Writing
Client receives income from sale of call options in exchange for foregoing upside.
May be appropriate for clients willing to divest shares at higher target price.
Potential Benefits
Upside participation to call strike price.
Generate cash flow if stock is range bound, slightly positive or negative trending.
Retain shares, dividends, and voting rights.
Risks and Considerations
Forego appreciation above strike price.
Downside not protected beyond call income received.
Buying back call options when underlying stock price appreciates may result in losses.
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Generate Income, Reduce Risk