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Massie(Sep/Dec15) – How to choose Collar

This topic has 3 replies, 2 voices, and was last updated 4 years ago by John Moffat.

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December 5, 2020 at 10:49 pm #597796
siwela1
Member
- Topics: 24
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Can my collar be any combination of my choice?
Looking at Massie, I believe the solution chose the Call option with the highest net return, combined with the put option that fixes the highest “cap” for the investor….
Was this intentional on the examiner’s part or can I choose any combination?
December 6, 2020 at 10:28 am #597835
John Moffat
Keymaster
- Topics: 57
- Replies: 54500
Yes – it can be any combination in order to illustrate how a collar works. These days there are usually only two exercise prices available in the question and then of course there is only one collar possible 🙂
December 6, 2020 at 12:33 pm #597870
siwela1
Member
- Topics: 24
- Replies: 17
So to clarify, the “best” collar possible is the one that fixes the highest cap in the case of an investor?
December 6, 2020 at 3:55 pm #597895
John Moffat
Keymaster
- Topics: 57
- Replies: 54500
No. Just as is the case with using options on their own, there is no ‘best’ choice because the premiums paid and received will be different with different exercise prices.
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