Collar Searches on PowerOptions for the RadioActiveTrading Methodology

There are several default Collar searches that are set up in PowerOptions for different market conditions. There is no default Collar search for the RadioActive Strategy, as we never sell the call right away after we open the Initial Married Put / RPM trade. With this method, selling the call right away can result in significant losses, not on the downside but on the UPSIDE. If I sell a call below the put strike price because of the premium, I run the risk of getting assigned if the stock spikes resulting in a significant loss below my cost basis.

Before I go into further details, let me break down the default Collar searches on PowerOptions. To access these searches, simply click the Collar tab and select ‘Search’:

1. An Initial Value Set – Standard Collars

This search is your standard, one month out, OTM Collar screen. Buy stock, sell a one month out ATM – OTM call, buy a one month out OTM Put. The Profit and Loss chart resembles a Bull Put Credit Spread or a Bull Call Debit Spread. This strategy can potentially generate 2.5-3% return if the stock moves up in 30 days, while only risking maybe 5 or 6% if the stock falls.

2. Conversion’s

This is a unique and very rarely used Collar screen. This looks for arbitrage positions where we would sell the call and buy the put at the same strike price, for the same expiration month. If the call premium is slightly higher than the put ask price, we might lock in a guaranteed return of 0.1 or 0.2% no matter what the stock does. This is not a strategy for retail investors, as the return would be eaten up by commissions.

3. Debit Collars

This is a more aggressive form of the Standard Collar search. For Debit Collars, a deep OTM call is sold and an ATM – ITM Put option is purchased in the same month. In this scenario, you are really expecting the stock to move up quickly, eventually going above the short call strike price. If assigned, the intrinsic gain in the stock to short call strike price more than balances out the higher cost of the put. Very aggressive strategy, only successful if you can pick fast movers on a consistent basis.

4. Different Months, Put ITM Collars

I will detail this in a little bit.

5. Different Months, Standard Collar Form

This search crosses the Different Months screen and the Standard Collar forms. Here, your purchased Put is far out in time but OTM. The short call is for the near term month and also OTM. The idea is to use the Standard Collar form but by having the OTM Put further out in time (which does not really lower risk too much) rather than having to buy the put month by month if you are rolling the short call.

6 + 7: Reversals, Different Month and Same Month:

This strategy can be used by investors who are in restricted trading accounts, cannot trade credit spreads, but want to take advantage of a Bearish market without buying puts. By adjusting the Call and Put strike, a Collar can be created that mimics a Bear Call Credit Spread or a Bear Put Debit Spread. When entering the trade for the ‘Same Month’ screen, an OTM call will be sold and an ITM put will be purchased (Put strike higher than the call strike). If the stock remains below the short call strike price, the call expires, the put can be exercised and a profit can be realized. When using the different months screen, the Profit and Loss chart resembles that of a Calendar Put spread or a Bearish Time Spread.

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Now, default search #4, the Different Month Put ITM Collars may be the closest to a RadioActive style Collar search, but again, this is not a recommended strategy. For this screen, we looking for ITM puts that are several months out in time and a near term short call that is equal to or above the protective put strike price.

This default screen also does not use RadioActiveTrading stock selection criteria. There are different, basic criteria that have been entered into the stock fundamental criteria for this default search.

With the RadioActive Methods, we can enter a protective position first that has unlimited upside profit potential. Once the stock moves up in price, we can apply various Income Methods to reduce the risk, potentially bulletproof the position and in most cases not limit our upside gains. Trying to open a Collar position first using the RadioActive Trading Techniques can cap your potential gains and in some cases cause larger losses on the upside if the stock spikes.

I hope this helps answer some of your questions. Please let me know if you would like any further clarification on any of the Collar searches or strategies, and why we feel the RadioActive approach is a much safer and potentially more profitable method to trade.