About Collar Spreads
A Collar position is an option spread created by buying underlying shares and simultaneously selling a call (covered) and buying a put where both options are typically OTM and have the same expiration date. Collars are typically utilized to lower the cost of downside risk protection, while also still allowing for some upside profit potential. The long collar strategy provides downside protection if the stock goes down, but limits upside profit potential.
Max profit is typically achieved if the underlying stock is at or above the call’s strike price at expiration.
Max risk is typically realized if the underlying stock is at or below the put strike at expiration.
Depending on market conditions, Collars can be established for either a debit or a credit.
Both the call and put are generally OTM, but some will want to bring the call 'in' to collect more premium. In that case, look to sell ATM or ITM for a bigger net credit.
P&L and BE Calculations
Leg 1 = Call Strike
Leg 2 = Put Strike
Credit Collar
- Net Credit = Leg 1 Bid – Leg 2 Ask
- Maximum Profit = Strike Price of Call – Long Share Price + Net Credit
- Maximum Risk = Long Share Price – Strike Price of Put – Net Credit
- Break Even = Long Share Price – Net Credit
Debit Collar
- Net Debit = Absolute Value of (Leg 1 Bid – Leg 2 Ask)
- Maximum Profit = Strike Price of Call – Long Share Price - Net Debit
- Maximum Risk = Long Share Price – Strike Price of Put + Net Debit
- Break Even = Long Share Price + Net Debit
Downside Loss and Upside Gain %s
- Downside Floor = The maximum loss at expiration of the collar position using the current underlying last.
(Put Strike – Stock Last) / Stock Last * 100 - Upside Cap = The maximum gain at expiration of the collar position using the current underlying last.
(Call Strike – Stock Last) / Stock Last * 100
The screener results are initially sorted by descending "Probability."
Options information is delayed a minimum of 15 minutes, and is updated at least once every 15-minutes through-out the day.
The screener displays probability calculations based on the delayed stock price at the time the strategy is updated. The new day's options data will start populating the screener at approximately 8:55a CT. Strikes that have not traded today are excluded from the results.
Main features of the Screener include:
- Ability to add various filters, with hundreds of different combinations.
- Save a Screener: When you've defined filters that you want to use again, save the screener.
- Load a Saved Screener: Select a previously saved set of screener filters to view today's results.
- View the Results using Flipcharts: Page through charts of the underlying symbols on the results page.
- Download the Results: Download up to 1000 results to a .csv file. The download will also pull all of the data fields present on the View you use.
- Automatic Screener Emails: This option is available for Barchart Premier Members. When you save a screener, you can opt to receive the top 10, 25, or 50 results via email along with an optional .csv file of the top 1000 results. Emails can be sent at Market Open (9:00am CT), Mid-Day (12:00pm CT), End-of-Day (4:45pm CT), and Overnight (3:00am CT) Monday through Friday.
Note: When selecting the Filter View for your Screener email, a filter must identify a specific search value in order for it to be included in the email.
Filters
Barchart Premier subscribers can add or modify different filters on the screener to find calls on the most favorable stock options.
Reordering Filters
Once filters are added, you may drag and drop them in the SET FILTERS tab to reorder the way they appear on the RESULTS tab (when using the Filters View). Each filter you add has the "Order" icon which is used to reposition it.
Deleting Filters
To remove a filter from your screener, click the checkbox to the left of the filter name, then click the red "Delete" button at the top of the column. You may also select all filters for deletion by clicking the checkbox at the top of the column, which selects ALL filters for deletion. You will be asked to confirm your decision to delete.
So you can focus on the best options, the screener starts by applying these default filters. Filter settings should be adjusted to match your trading requirements.
- Days to Expiration (monthly expirations only) is between 0 and 60 days.
- Security Type is only Stocks.
- Break Even Probabiliy: 25% and higher
- Options Volume Leg 1, Leg 2: for US market, must be greater than or equal to 100. For Canadian market, must be greater than or equal to 1.
- Open Interest Leg 1, Leg 2: for US market, must be greater than or equal to 500. For Canadian market, must be greater than or equal to 5.
- Delta Leg 1: -0.15 to -0.35
- Delta Leg 2: 0.15 to 0.35
- Bid Price Leg 1 is greater than 0.05.
- Bid Price Leg 2 is greater than 0.05.
In addition, the option must not be a "restricted" option (the option cannot be based on a split stock).
Note: Non-standard or "restricted" options (options quotes marked with an asterisk * after the strike price, and found on an individual symbol's options page) are automatically removed from the screener. A "restricted option" is typically created after spin-offs or mergers, and is not tradeable.
Views
The Results page contains three standard views. You may switch the view using the links at the top of the screener results table. The Main View shows fields important to understanding the spread, while the Dividend & Earnings View can be used to highlight strategies with upcoming dividends and earnings. The Filter View shows you the data contained in the field(s) you've added to the screener.
A checkbox is provided on all Views to "Show Strategy Description" in the view. The Strategy Description can be helpful in breaking down how the options strategy was built. Example of a Collar Spread description:
LCS_03/15/24_110.00_5.00
where:
- LCS = strategy
- 03/15/24 = expiration date
- 110.00 = Leg 1 strike
- 5.00 = Strike Differential (difference between each leg: Leg1 and Leg2)
Main View
- Stock Symbol - the underlying equity. Clicking on the symbol will take you to the current quote page.
- Stock Last Price - the last price of the underlying symbol
- Expiration Date - the expiration date for both the call and the put.
- Leg1 Strike - the price at which the underlying security can be bought if the option is exercised.
- Leg1 Bid - the bid price of the Leg 1 option
- Leg2 Strike - the price at which the underlying security can be bought if the option is exercised.
- Leg2 Ask - the ask price of the Leg 2 option
- Net Debit(Credit) - For a Credit Collar, (Leg 1 Bid – Leg 2 Ask). For a Debit Collar, the absolute value of (Leg 1 Bid – Leg 2 Ask)
- Max Profit - For a Credit Collar, (Strike Price of Call – Long Share Price + Net Credit). For a Debit Collar, (Strike Price of Call – Long Share Price - Net Debit)
- Break Even - For a Credit Collar, ( Long Share Price – Net Credit). For a Debit Collar, (Long Share Price + Net Debit)
- Upside - Upside Cap is the maximum gain at expiration of the collar position using the current underlying last. (Call Strike – Stock Last) / Stock Last * 100'
- Downside - Downside Floor is the maximum loss at expiration of the collar position using the current underlying last. (Put Strike – Stock Last) / Stock Last * 100'
- Probability - The likelihood of the strategy to break even.
- Max Risk - For a Credit Collar, (Long Share Price – Strike Price of Put – Net Credit). For a Debit Collar, (Long Share Price – Strike Price of Put + Net Debit)
- Net Delta - The net delta of the strategy. Delta measures the sensitivity of an option's theoretical value to a change in the price of the underlying asset.
- Net Theta - The net theta of the strategy. Theta measures the time decay of an option, the dollar amount that an option will lose each day due to the passage of time.
Dividend & Earnings View
- Dividend - the dividend the equity pays on the Ex-Dividend Date. On the morning of the Dividend Ex-Date, the stock's price is lowered by the amount of the dividend that was just paid.
- Dividend Ex-Date - the first day on which the stock trades without the dividend. If you wish to receive the dividend, you must own the stock by the close of market on the day before the Dividend Ex-Date. Many times, a covered call is exercised early so the buyer can own the stock and collect the dividend. This typically happens to ITM options the day before the Dividend Ex-Date.
- Earnings Date - The date on which a company is expected to release their next earnings report. The prices are more volatile, which tends to inflate the prices of the near-the-money strikes. During a contract period when there is an earnings report due, the earnings announcement can dramatically shift the range in which the stock has been trading.
