BAC Equity Option Collar Trade Results
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What an exciting ride for my Banc of America Equity (BAC) Collar option strategy. When I placed this paper trade, the financial crisis was starting to unwind and I put this strategy in place thinking that BAC was going to trade in a tight range for some time. As you can expect, this trade provided me protection against what happened to BAC in the coming months. As you may recall, I was benching this trade against a buy and hold strategy for BAC.
Here are the results:
Buy & Hold Strategy
Buy 100 Shares of BAC @ $29.04 = $2,904
as of 11.21.2008 BAC @ $11.47 = $1,147
Received dividend payment of $0.64 per share = $64.00
Net Loss of $-1,693 or -58.3%
Equity Collar Option Strategy
Buy 100 Shares of BAC @ $29.04 = $2,904
Sell 100 shares of Nov 08 30 Call Option @ $2.95/share = $295
Buy 100 shares of Nov 08 $27.50 Put Option @ $3.12/share = $-312
as of 11.21.2008 BAC @ $11.47 = $1,147
Received dividend payment of $0.64 per share = $64.00
Net Loss of $-107 or -3.7%
Please note this paper trade and comparison do not take commissions and taxes into account. I will also update the Finance Puzzle account for the results of this trade.
My first equity collar option paper trade ended up being an invaluable learning example for the future of my investing strategies. I originally entered thinking BAC would trade in a tight range but it also ended up provided some downside protection. If you are looking to supplement your portfolio to protect for future losses, protective puts are a better strategy. I will research to see what protective put strategy I can put in place for a future blog posting.
Author Disclosure: The author is neither long nor short BAC or any related derivative. This post was for illustrative purposes.
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