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COLLAR AUTO ADD.

(this just a short discussion to be developed later.)

plain vanilla collar *FAS* Risk Graph.

Typical Order TYPE

The Underlying is currently at 102.74

The Collar, or FENCE would be the highlighted bars.

*NO COST COLLAR*

Typical AUTO add adjustment would look like this but done farther down the Chain, under improved Volatility levels. (Less then FULL Size)

This adjustment accomplishes a multitude of objectives.
 

1) Brings it a small additional credit. ... In this case an additional .38 cents.

 

and because this is a credit, an upside averse move only helps you, as well as mentally giving you a prepared game plan on a dramatic hard move against you.

 

 

2) Forces you to be more mechanical in the decision making process of the collar management.

 

3) Can bring in additional $1250.00 Plus, in optional conditions, while pushing down the forced buy point exposure lower. (in this case approx 85.60 ish) One SD is 89 strike level.

 

The IDEA is that the Implied Volatility spike- Is a gift that should be captured before a reversion to the mean.

(+2 x -4x example)

 

 

Preferable at expiry, on the forced acceptance of long stock at 85.60ish the original puts (99s original collar order) will be sold and re-fenced at the new level.

 

 

 

 

 

The math of will start to become apparent to anyone doing this on a higher vol, lower priced stock.

(IE 20-30 stock with high vol)

 

 

(if I have 5000 shares of a 20 dollar stock = 50k in margin, but own a put.. and it goes down to 15, and I get my 50k back by exercising the put, I can then afford to buy 3300 shares, lowering my break even point.)

 

That the new lower price, higher percentage drop would allow more cash available for a comfortable new additional stock purchase.

 

 

According to trader tolerance this new level can be determined before hand, and a trader positioned to take advantage both statistically, and strategical if even remotely close, or wrong on expectations.

 

 

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The same thing will be done on the call side to salvage the break even point.

 

(FULL SIZE *+1x - 2x* Twice FULL SIZE)

 

 

Stock originally bot at 102.74

 

Buying back the original SOLD calls (106s) and overlying a +10 -20x for ZERO debit to slight credit.

 

Adds no additional risk. but lowers the break even point by 1/2 of the original position because in the short run now you are controlling twice as much stock, IE bring down your break even, and considering its a ZERO debit- if it fails the user is out NOTHING more.