By Derek Moore
Jay Pestrichelli joined Nasdaq Trade Talks to discuss the option tactic referred to as the no-cost collar.
This involves owning the underlying asset while simultaneously buying protective puts and selling covered calls. Because you are using the premium received from the call to purchase the put, it winds up being no or little cost.
The portfolio then has a floor where it can’t decline past.
Of course this does put a cap somewhere up above the market. While this construct is somewhat simple to seasoned options investors, the key is harvesting hedging profits at the right time to reinvest into the underlying cheaper.
Jay also discusses some Macro factors in markets and why investors still want to be in the market.