Hdo rolling collar

HAPPY DAY OPTIONS CLUB

ROLLING COLLAR STRATEGY

Presented by HARYO SUPARMUN

Jun 17, 2006 HARYO SUPARMUN in HDO Club Meeting

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OPTIONSAN OPTION CONTRACT:- A CONTRACT BETWEEN WRITER AND

HOLDER. - GIVES TO ITS HOLDER THE RIGHT, BUT

NOT THE OBLIGATION, TO BUY OR SELL SHARES OF THE UNDERLYING SECURITY AT A SPECIFIC PRICE ON OR BEFORE A GIVEN DATE.

- AFTER THIS DATE, THE OPTION EXPIRES.


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CALL OPTIONS


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PUT OPTIONS


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RIGHT OR OBLIGATION

CALL OPTIONSBuy Call

Right, not obligation to BUY

Sell CallObligation to SELL, if being exercised

PUT OPTIONSBuy Put

Right, not obligation to SELL

Sell PutObligation to BUY, if being exercised


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COLLAR STRATEGY

OWN or BUY SHARES OF STOCK.SELL CALL OPTIONS AGAINST THE STOCK.BUY PUT OPTIONS FOR PROTECTION.

A combination of Covered Call and Protective Put


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COLLAR STRATEGY

XYZ trading at $72, Selling an 80-strike Call for $2 Buy a 70-strike Put for $3

Creates a collarlimits the total risk to $3 per share

limits profit potential to $7 per share.


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COLLAR: Long Stock at $72, Long 70 Put at $3, Short 80 Call at $2


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ILLUSTRATION ON ROLLING COLLAR TRADE

MARKET:

NASDAQ 100 TRACKING STOCK (QQQQ) AND ITS OPTIONS. STRATEGY CAN BE APPLIED TO OTHER HIGH-VOLUME EXCHANGE TRADED FUNDS (ETFs) AND THEIR LIQUID OPTIONS CONTRACTS.


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SYSTEM CONCEPT:NASDAQ 100 TRACKING STOCK (QQQQ)

BUY-&-HOLD STRATEGYvs

COLLAR using LEAPS

LEAPS= Long-term Equity AnticiPationSecurities (options with at least a year to expiration)


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Strategy:

- Buy or Own underlying market (QQQQ).- Sell near month Call Option.- Buy LEAPs Put for protection.

Position:- Covered Call to collect income.- Long Put for Protection.


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Combining a protective Put with Covered Call (Long QQQQ and Short OTM Call) creates a “rolling” collar.

The “roll” occurs as you buy back the short call each month (or, alternately, they expire) and then sell new calls in the next expiration month.


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Initial investment $50,000 on Jan 2, 2001, no additional capital over the past 5 years.Adjusted overall position periodically as QQQQ moved Up or Down. Additional shares were purchased with the premium from selling short-term calls. Shares were sold if funds were needed to buy back ITM calls or roll the LEAPs. No margin were used, commissions were not included, and all trades used current bid/ask prices.


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QQQQ closed at $53.44 on Jan 2, 2001.Create initial collar:

- Buy 735 shares QQQQ.- Buy 7 Jan 2003 $55 Puts (the LEAPs).- Sell 7 Feb 2001 $58 Calls.

Compared with:Buy-&-hold strategy bought 935 shares.


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Trade Rules:1. For every 100 shares owned,

purchase an ATM LEAPS Put option in farthest out year. Hold these Puts until a new LEAPS expiration become available for the following year. Then, sell the current long Puts and buy the same number of ATM Puts in the new furthest expiration year.


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Trade Rules:2. For every 100 shares owned, sell

near-month Calls just less than one standard deviation above QQQQ’scurrent price. If call’s bid price is less than $0.10, select one strike lower to ensure you collect adequate premium.


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Trade Rules:3. On expiration day, if the short calls are ITM, then cover

them (most likely at a loss). If the calls are OTM, then allow them to expire worthless.

In either case, sell the next-month calls at this time.a. If the calls are ITM, any cash shortfall is met by selling

QQQQ shares.b. If the calls are OTM, any excess cash is used to purchase

additional QQQQ shares.c. After another 100 shares are purchased, sell an additional

call each month and begin to save that premium to buy another ATM Put to protect those shares.


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Test Data:

The system was tested using NASDAQ 100 tracking Stock (QQQQ) and its options.

Test Period:

Jan 2, 2001 to November 18, 2005


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Test Result:

- QQQQ was equally split between positive and negative monthly returns during test period, with 29 positive months and 29 negative months.

- After 59 months:- Buy-&-hold approach declined from $50,000 to $38,752, or 22.50% loss.- Rolling collar climbed from $50,000 to $59,388 (not including commissions), or 18.78% gain.


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Outcome:The rolling collar is a hedged position,- dramatically mitigates losses in bear markets.- although it lags buy-&-hold in sharply bullish

markets, it still can gain ground when the market rallies.


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Figure 1: Daily Chart of QQQQ


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Figure 2: Compares the performance buy-&-hold vs rolling collar


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Strategy Summary on QQQQ


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NASDAQ 100 Trust Shares (QQQQ)$38.65 Up 1.02 (2.71%) Thursday, June 15, 2006. JUL 2006, Expire Jul 21, 2006

6752085.405.206.10QQQSR.X44.004,50360.05N/A0.05QQQGR.X

2,35484.404.204.50QQQSQ.X43.0013,571500.05N/A0.05QQQGQ.X

9,8702973.403.203.30QQQSP.X42.0047,191580.05N/A0.05QQQGP.X

18,0902,4982.402.302.40QQQSO.X41.0058,8362,5260.150.100.15QQQGO.X

76,36611,4951.551.501.55QQQSN.X40.00122,4438,0180.350.300.35QQQGN.X

137,89622,0600.950.900.90QQQSM.X39.00135,73230,8140.800.750.80QQQGM.X

215,42128,3030.600.550.60QQQSL.X38.0064,46461,0621.451.401.40QQQGL.X

212,95592,5580.400.350.35QQQSK.X37.0026,35917,6302.252.202.20QQQGK.X

189,39216,7270.250.200.25QQQSJ.X36.005,7306,1023.203.003.00QQQGJ.X

70,4001,8710.200.100.15QQQSI.X35.005,5551,2074.103.904.00QQQGI.X

Open IntVolumeAskBidLastSymbolOpen IntVolumeAskBidLastSymbol

PutsStrikePrice

Calls


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NASDAQ 100 Trust Shares (QQQQ)$38.65 Up 1.02 (2.71%) Thursday, June 15, 2006. JAN 2008

11,64136.005.706.20YWZMR.X44.007,368252.902.752.30YWZAR.X

15,6833545.305.005.00YWZMQ.X43.0017,085153.403.203.20YWZAQ.X

28,4261004.704.504.60YWZMP.X42.0034,779473.803.603.60YWZAP.X

64,275874.203.904.20WDMO.X41.0049,878174.404.104.08WDAO.X

30,1342,0383.703.503.80WDMN.X40.0034,0811934.804.704.80WDAN.X

38,211833.303.003.00WDMM.X39.0033,008915.505.205.30WDAM.X

22,2007,6042.852.702.80WDML.X38.0012,4877,5496.105.805.90WDAL.X

6,6981092.502.352.75WDMK.X37.003,07956.706.506.20WDAK.X

6,567592.202.052.20WDMJ.X36.003,48137.407.106.30WDAJ.X

6,2302221.951.801.85WDMI.X35.005,09618.007.807.40WDAI.X

Open IntVolumeAskBidLastSymbolOpen IntVolumeAskBidLastSymbol

PutsStrikePrice

Calls


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Rolling Collar STRATEGY on QQQQ

Buy 100 QQQQ at $38.65, Sell 39-strike JUL 06 Call for $0.75,Buy 36-strike JAN 08 Put for $2.20.

Costs: 38.65+2.20-0.75=$40.10If price >$39, close Call option,

if price <$38, allow expire, follow by sell next month Call at this time.

ROI ~ 2% per month.


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THANK YOU!!!!!!THANK YOU!!!!!!

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Hdo rolling collar

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