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Michael C. Thomsett is a widely published options author. His "Getting Started in Options" (Wiley, 9th edition) has sold over 300,000 copies. He also is author of "Options Trading for the Conservative Investor" and "The Options Trading Body of Knowledge" (both FT Press); and "Options for... More
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  • Installment Collar – Variation On The Dividend Collar 2 comments
    Mar 1, 2014 12:31 PM

    The collar can be expanded to create a truly creative variety. The traditional collar (own 100 shares, sell 1 covered call, and buy 1 put) can be turned into a long-term protective version:

    • buy 100 shares
    • sell one very short-term covered call, maximizing annualized income as the result of time decay
    • buy one long-term put (8-10 months)

    This accomplishes a relatively high rate of return without the need to replace the put. The short call expires or is closed and then replaced as many times as you like. This should more than pay for the relatively rich long put, but on the installment plan. A one-month call could be opened and let expire up to 8-10 times over 8-10 months.

    Meanwhile, you get the insurance protection against downside risk. If the stock price falls so that the long put goes in the money, its value increases one dollar for each point lost in the stock, limiting downside risk.

    Because the put is paid for on the installment plan, it doesn't really matter what you paid for it or how time decay happens. The net outcome is a wash between long put and short call. This is a no-cost or low-cost way to get the insurance put but without having to turn over the collar frequently.

    Ideally, you get the downside protection, and over time the short call premium and dividends more than pay for the put.

    To gain more perspective on insights to trading observations and specific strategies, I hope you will join me at where I publish many additional articles. I also enter a regular series of daily trades and updates. For new trades, I usually include a stock chart marked up with reversal and confirmation, and provide detailed explanations of my rationale. Link to the site at to learn more. You can take part in discussions among members on the site at the Members Forum.

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  • Special Situations and Arbs
    , contributor
    Comments (1523) | Send Message
    Have you seen a risk free dividend collar lately? How do you screen for them?


    1 Mar 2014, 01:32 PM Reply Like
  • Thomsett
    , contributor
    Comments (74) | Send Message
    Author’s reply » Yes,
    I find these often. I publish a weekly dividend collar watch list, and this week's edition (coming out on my website Monday ( includes four companies that work with ex-dividends all coming up this week - and all yielding double-digit returns. My calculations were based on Friday's closing prices. - Michael
    2 Mar 2014, 09:04 AM Reply Like
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