I am new to using options and would be interested in using a collar for CSIQ (Canadian Solar). I have no idea as to how to structure this . Could you give me some advice?


Hello CR,
I cannot give specific advice, but I will give you a couple of examples to show you how a collar works. The stock is currently priced at 32.
Collar: 100 shares of stock; buy one put; sell one call.

1) Most investors would buy one Aug 30 put and sell one Aug 35 call for each 100 shares of stock owned. Because the put is priced a bit higher than the call, you must pay a cash debit to establish the collar - perhaps $70 for each put/call combination.
For that $70, you are guaranteed to be able to sell your stock at $30, no matter how low it may go.
Your highest selling price for the stock becomes $35 per share (because you sold the call with that strike price).

Your decision:  Is it worth $70 to establish that collar?
2) As an alternative, you could buy the Aug 25 put instead of the Aug 30 put.  That makes your downside $500 worse, but you would save about $200 on the cost of the put.  Thus, you would risk losing an additional $300, compared with the example above (by selling stock at 25 if the shares drop below that price), but you would collect $130 cash for establishing the collar.

Bottom line:  Decide how much protection you need, then buy an appropriate put option.  Next decide which call to sell - based on the cash you collect when selling the call and the strike price of the call (and your willingness to sell stock at that strike price).  Finally, decide if the options you chose make you comfortable with the cost of the collar.   Sometimes you pay cash, sometimes you collect cash.

Mark D. Wolfinger
The Rookie's Guide to Options:
The Beginner's Handbook of Trading Equity Options
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