Concentrated Stock Comprehensive Guide eBook PDF version - Page 15

Upside Capped above Call Strike Price

Costless Collar

Collars offer minimum price level for sale (put) while retaining upside exposure to call strike (call).

Flexibility to select call and put strike prices to achieve desired payoffs and risk mitigation levels.

Potential Benefits

Upside participation to call strike price.

Helps protect against significant declines on a stock below put strike price.

Retain shares, dividends, and voting rights.

Risks and Considerations

Upside capped above call strike price (unless calls are bought back).

Exposure to losses down to put strike price.

Downside protection below put strike price

Covered Call Writing

Client receives income from sale of call options in exchange for foregoing upside.

May be appropriate for clients willing to divest shares at higher target price.

Potential Benefits

Upside participation to call strike price.

Generate cash flow if stock is range bound, slightly positive or negative trending.

Retain shares, dividends, and voting rights.

Risks and Considerations

Forego appreciation above strike price.

Downside not protected beyond call income received.

Buying back call options when underlying stock price appreciates may result in losses.

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Generate Income, Reduce Risk