No Fear Investment: A Study on Collar Strategy

Yong Li ； Fei Zhao ； Xichang Huang ； Lu Zhang

《The 2nd China-ASEAN International Conference 2020 & The 2nd International Conference on Tourism, Business, & Social Sciences 2020:Insight to China and ASEAN's Wellness, Tourism, & Innovation》 2020 (2020/04) Pp. 75-82

https://doi.org/10.6947/caicictbs.202004.0008

摘要

Financial markets play a vital role in facilitating the smooth operation of economies by allocating resources and creating liquidity for businesses and entrepreneurs. The markets make it easy for buyers and sellers to trade their financial holdings. Financial markets create securities products that provide a return for those who have excess funds (Investors) and make these funds available to those who need additional money (borrowers). Financial markets are made by buying and selling numerous types of financial instruments including equities, bonds, currencies, and derivatives. The stock market is one type of financial market that attracts many individual investors in addition to financial institutes. But individual investors can hardly get consistent returns from the market. Some individual investors will sell the stock when it goes down certain amount or percentage to CUT LOSS as told by the market guru or as read in books. Investors can actually hedge against their stocks like buying ＂insurance＂, just like they may have done on their house, car and other valuable personal properties. Furthermore, they can even have someone else pay for part of ＂insurance premium＂. Read my L.I.P.S. that stand for Leverage, Income and Protection Synergy. I will show you a way to invest for potentially good return with low risk. We will introduce a trading system based on a conservative stock option strategy called Collar, which contains three instruments or legs: long stock, long put and short call. [5] While traditional collar changes little when the stock moves, investors can potentially generate much better return by actively managing the positions following our system. Call (Put) Option - In finance, an option is a contract which gives the buyer the right to buy or sell an underlying asset or security at a specified strike price prior to or on a specified date, depending on the form of the option. The seller has the corresponding obligation to fulfill the transaction - to sell or buy - if the buyer exercises the option. An option that conveys to the owner the right to buy at a specific price is referred to as a CALL; an option that conveys the right of the owner to sell at a specific price is referred to as a PUT. Both are commonly traded. One (1) contract of option normally controls one hundred (100) shares of underlying security in US market. The expiration date for listed monthly stock option in the US market is normally the third Friday of the contract month or the month that the contract expires. On months that the Friday falls on a market holiday, the expiration date is on the Thursday immediately before the third Friday. Volatility - Volatility can be simply defined as a statistical measure of the dispersion of returns for a given stock. It represents average daily high and low percentage range. In the security markets, volatility is often associated with big swings in either direction. When our position has options, we must consider volatility in addition to the potential directional move. High volatility results in high option price. Delta - Delta represents the rate of change between the price of an option or combined stock-option position and the underlying security, in other words, the price sensitivity of the option or combined position relative to the underlying. Delta of a call option has a range between zero and one, while the delta of a put option has a range between zero and negative one. For options traders, delta also represents the hedge ratio for creating a controlled delta position. Another usage of an option's delta is its current probability that it will expire in-the-money. For instance, a 0.40 delta call option today has an implied 40% probability of finishing in-the-money.

關鍵字

Call Option ； Put Option ； Volatility ； Delta