Strategies · Library · Options
§2.53Hedges and structures
Collar
Own the underlying, buy a put below the market for protection, and sell a call above it to pay for the put. Losses and gains are both bounded.
Open in the builderAs a long-only proxy; see how ARCANE uses it.
- Asset class
- Options
- Held for
- To expiry
- Data
- ARCANE has part of the data
- Symphony
- Builds as a long-only proxy
The rule
- Signal
- Moderately bullish while wanting protection against a drop.
- Entry and exit
- Hold the underlying and open a put and a call at about the same expiry, with the put below and the call above the price. Roll or close at expiry.
- Sizing
- 100 shares per put and per call
How it fails
- Worst loss is the fall to the put strike plus any net cost
- Gain is capped at the call strike, so a rally is forgone
- Assignment on the call can take away the stock early
Data it needs
- options chain with strikes and premiums
- implied volatility
- underlying daily price
ARCANE has the underlying daily close but no options chains or implied volatilities
How ARCANE uses it
A Call that an asset rises moderately while limiting loss matches this; paper only. The ARCANE form is an ETF held while above a long average.
Builds as a long-only proxy. Holding the underlying in an uptrend and a safe fallback below the average mimics the bounded downside.
Source: Kakushadze and Serur (2018), 151 Trading Strategies, §2.53, p. 38 of the SSRN version. Described in our words. Hedges and structures is ARCANE’s filing, not the book’s.