Strangling, is the dividend problem the principal disadvantage of using Married Calls instead of Married Puts? If so, I think the ex-dividend problem can be managed and controlled several ways. The first that comes to mind is not to do this with dividend paying stocks. There are plenty of non-dividenders out there who could be used.

One reason I'm becomming rather obsessed in my preference to use shorted stock rather than long stock is that $72,000 downstroke at the start of Scott's article. YIKES!!!

Bob

Juan, in reply to your most recent posting, the problem I can think off the top of my head is gamma curvature. Suppose you buy a BCS on XYZ at $80, you lock in profit at $90 and invert delta. XYZ is then at $50, you sell your hedge, and buy more BCS at $50. Now what's the problem? It's the same thing as a stock collar no? Problem is, that BCS at $80 that you bought, even as LEAPS, will have a miniscule delta because it is so far OTM. And because it is a LEAP BCS, your gamma is negligible. Even as XYZ moves to $60, the only BCS really gaining is the one you bought at $50. With stock, you gain immediately. Delta +100 in stock stays forever.

Bob, the married call(syn put), can be used to construct a reverse collar to play a long term down trend. Just be careful with dividend issues.

Juan, as we all know options expire. Stock doesn't, unless the company goes bankrupt. To effectively pyramid a position using pure options, one would need to be right, continously. Say you had a BCS and the stock went up, and it keeps going up. You could keep putting in BCSs as the stock goes up, and adjusting as it goes down to lock in profit. But at some point, you need to re-establish the positions as the options expire. Even if you used the furthest LEAPS there is, unless you use deep ITMs, your delta won't be 100. Long stock is +100 forever. That explains the theorectical.

Here is the technical. Suppose you long 1000 shares of XYZ at $30. You are bullish, and buy a put to hedge. Now you have a synthetic call. Either the stock moves up, down, or flat. Your synthetic loses if it doesn't go up. So if the up move doesn't appear, sell calls. How many to sell depends on whether the stock is falling or neutral. When the stock appears to move back up, buy back calls and long more stock, and switch your delta bias to +. All this strategy is, is using the semi-stock(collar) to hedge stock delta. If you are a really good directional trader, you will get in and out at the turning points and make a killing. Why? Because you compounded your position thru dollar cost averaging, but in the process lost no money or even turned a profit. The key part is knowing how and when to invert deltas.

Scott appropriately points out:

" As a matter of fact, the example I am using here left so much money on the table that any professional trader would be embarrassed to claim that he did the trade as described. "

In jan 2003, at the Advanced seminar I attended I asked GF. I have a lot of stock in one company due to employee compensation. I said I was glad that Optionetics introduced me to the Collar concept because that way I could keep the stock, at least until the tax implications changed.

He replied that his advice to a friend with a lot of PG stock was: Sell the stock, put the money in a CD and enter a bull call spread with leaps with the same number of Deltas.

Of course I could argue that you can own the stock for ever, the spread has a time limit. You just switched your risk from Capital to Theta. There is no free lunch. However, it is clear that no matter what happens the Bull Call Spread functions like a collar, but with the Bull Call Spread at least you have a lot of cash in a CD, earning 5.5% or so.

Juan, have you read Scott's article yet? He answers your question better than I could possibly do.

Strangling, do you have an opinion on the use of the Married Call (with shorted stock) as an alternative? Nobody else seems inclined to weigh in.



Bob

Condor, please elaborate.

Again, why would anyone do a Collared stock if they can do a bull call spread or a bull put spread? The cash could be in a CD at 5.6% over 5 years now a days.

I once considered a Collar on a stock position that I wanted to keep for tax purposes. That is the only utility I have found.

Mr. Magoo...

Risk should be in inverse proportion to your age too. The younger you are the longer you'd live to see a Bull market. Patience is your ticket.

Generating income and wealth are 2 different things. Income is whatever is working at the moment, while wealth needs to be pyramided, hence collars. Nothing is easier to pyramid than stock.

For people with lots of money
they no longer need to be risky to have income.
Us regular folk need to be more risky to generate anything.

Same as problem with tax rate,
people with less money are affected more than people with more money.

Let me ask you then a more basic question that beginners may ask themselves:

Premise:

1. Buying a stock equals the risk of a short put and the reward of a long call.
2. Buying a put along with the stock would cancel the risk of a short put.
3. You are left then with the synthetic equivalent of a long call.
4. Owning the stock is capital intensive.

Why not then buy a long call, put the rest of your capital in a CD and save yourselves the comissions of multiple openings of puts?

I think that this is one of G.F.'s phylosophical questions I tend to agree wiith. He once told me that he keeps about 95% of his money in CD's and secure investments. He does not bother with stock because, after all, the risk to the downside is unlimited.

So keeping 95% of your money in CD's won't make you rich, but it could pay the bills, while the other 5% you can play with aggressively (as long as you have a method).

Juan, in your posting below at 17:39 on August 21, you asked a great question. That was: If I owned say 100 Shares of XYZ and also owned 1 ATM Put, and the stock moved up $10 and my Puts were worthless, would I then buy more Puts? The answer is, yes I most probably would. In fact, I would probably do so prior to the $10 move up. Reason is that if the stock moved up $10, the profit on the stock ($1,000) would have exceeded the loss on the Puts. This is an oversimplification of the racheting concept discussed by the authorities cited below.

Risk and reward are tied to Gamma and Theta, not delta. Being long or short on the underlying never has any Gamma or Theta. But Delta is always present. That is, long $100 shares is always 100 positive delta and short $100 shares is always 100 negative delta. But as we both know, as the stock goes up or down, the Deltas of the options change and this is the Gamma effect.

Bob