Welcome to Steady Collars

[Kim 7,942]

We are pleased to offer a new service to our members called Steady Collars. It will be our version of the traditional Collar strategy.

The strategy description has been provided by Chris Welsh.

 

Welcome to Steady Collars

 

Steady Collars is designed to be an easy to manage, low maintenance trade with the potential of making returns over 50% annually, with targets approaching 80%.   The model portfolio will begin an account of one hundred and fifty thousand dollars ($150,000), which is the minimum amount necessary to open a portfolio margin account at Interactive Brokers (where the trades that we make will occur).

 

You do not have to use Interactive Brokers and can use whatever trading service you like.  However, this trade was structured around the use of leverage and is highly sensitive to interest rate changes.  A trade that works with a 6.5% margin interest rate likely will not if the margin interest rates are 10%.  Because of this, every user needs to understand how gains and losses are calculated over time with interest rates included.  You do not have to use portfolio margin either, you can simply make less trades, but failing to utilize portfolio margin likely will dramatically lower your profits. 

 

When creating the strategy, we wanted to devise a strategy that either eliminated market movement risk or greatly limited it, while still being able to make outsized returns.  For the majority of these trades, this is done through dividend capture strategies.

 

The basic trade setup is pretty simple
 

1. Buy a stock
2. Sell a long dated call in the money
3. Buy a long dated put one strike further down than the call
4. Hold to expiration (most of the time).

 

A deeper dive into the trade’s basic strategy and setup can be found here: Basic Trade Strategy and Setup - Steady Collars Discussions - SteadyOptions.

 

 

Gains are realized from two primary sources:

 

A.     Collection of dividends; and

B.     Purchasing the position at a price under the short call value and having the position called away at expiration.

 

For instance, we may enter the following trade:

 

  Buy 500 shares of ABC at $100

  Sell 5 Calls of the January 2024 70 strike at $32

  Buy 5 Puts of the January 69 strike at $1

  Total cost: $69.00

  2 dividends left between now and expiration of $1.00 each

 

This trade only has dividend and interest rate risk – there is no market risk.  Even if the stock goes to zero and pays out no dividends, we still receive back $69, which is our initial cost (losses would come from interest charges).

 

Gains on the trade come from the receipt of $2.00 in dividends and if the trade closes over $70, thus gaining $1 of capital appreciation.  This would be a 4.3% return in about three months, so 12.9% annualized. 

 

And while such a return is amazing, the true “magic” occurs when you trade on portfolio margin.  The total cost of the above trade when entering (not including trading costs), is $34,500 (69*5*100), for a $1,500 return.  BUT it may only cost us $6,000 of portfolio margin – thus increasing our levered return to 25%, or 100% annualized.  When the portfolio is fully invested, then we stand to gain 100% on leverage.

 

Now we have to pay portfolio margin interest (6%), which lowers that from 100% to 94% -- which we will be quite happy with.

The beauty of the strategy is that you can decide the amount of leverage. You can still make around 12-15% with zero leverage, which is an amazing return for such low risk strategy. or you can use a regular margin account, apply 1.5-2x leverage and make 15-25%.  
 

Now it is rare to find a trade as good as the example (though they do exist).  It’s more common to see where the price might be $69.80 with $1.00 of dividends.  Risk then comes in if the dividend is cut.

 

We also will do trades without dividends.  For instance, we entered a trade on LTHM where we bought the stock, sold the 19 call, and bought the 18 put for $17.95.  This is a riskless trade except for interest rate risk.  No matter what, we make at least $0.05.  If the price finishes above $19, we make $19.05.

 

These trades typically require very little management, which is one of their big selling points.  At times we may exit early if the majority of profit has been realized but most often they will be held to expiration.  We may also get assigned early, but that typically is a good thing as profits are then locked in. 

 

Daily price fluctuations typically do not concern us.  Entry price is extremely important.  Given the insane amounts of leverage we use, a few pennies down on entry can make 20% difference.  This is quite simple to handle – use discipline.  If you want to get a fill price of $0.95 or less, don’t change that.  There are enough candidates that come up that missing a trade or two is a non-issue – but over paying is.

 

Service highlights:

 

• Model portfolio:                $150,000
• Underlying:                        Stocks that trade options
• Average Hold Period:       6 months to a year
• Tailored for long term traders
• 12-24 trades per year

 

 

[jvo 9]

Thank you for the details. Sounds like a nice low maintenance strategy. Based on your research of the strategy, what are expected drawdowns we should be prepared for? 

[SSP 6]

Same question as above Chris - I would also like to know the expected drawdown, so that I can be prepared with enough cash to cover that.

Thanks, and I am already in two of your trades.

Sarang

[cwelsh 1,542]

On 10/2/2023 at 5:24 AM, jvo said:

Thank you for the details. Sounds like a nice low maintenance strategy. Based on your research of the strategy, what are expected drawdowns we should be prepared for? 

This is dependent on what trades you elect to take.

 

For instance, I typically take 2-5 trades in the portfolio that either (a) have no dividends or (b) have some downside risk.  This is dependent on the stock and how comfortable I am owning it if the price drops.

 

Take C for instance, we have the 35 puts, and if the dividend of C is cut and the price drops below 35, I could end up owning C - which I would be happy doing at 35.  But if you only took trades like the AMZN trade discussed the other day, without leverage, you'd never have a drawdown, as it's a zero risk trade.

 

Then there is also realized vs. unrealized losses.  You can absolutely get intra day (and even intra month) moves up and down that if the positions are held to expiration you will not see.  I've seen this swing as much as 20% in my own portfolio, particularly on options with very wide spreads.  As an example, take our open LTHM trade.  We're in the 19 call 18 put trade and entered for $17.95.  Just a week ago it was marked to $17.10.  Which is absurd owning the 18 put -- we can't get less than 18 (even though that's a 5% drop), and with the 18x leverage on the trade, my statement shows the position is down 85%.  (Total impact to the portfolio is about -7%).  If you consider that a drawdown, then you should plan on seeing daily swings of fairly large numbers.

 

How bad COULD things get?  Well that's an easy calculation, as we know that going into each trade.  For instance, on LTHM, including interest, we could lose up to $6,144 if the portfolio is fully levered. The PENN position could lose $16,000 or so.  

 

We try to structure things if there's a complete market crash AND all dividends are canceled, we won't be down more than 50%.  If we start getting above that, we will add a hedge in (which we're considering doing anyway).  

 

 

[cwelsh 1,542]

4 hours ago, jvo said:

Thanks Kim,

Will wait for a response from Chris. As you stated, 12-15% is an amazing return long-term...will be interesting to hear what the drawdowns are in comparison.

If you limit leverage, or don't use it, you should be able to get 12% fairly easily.  Looking at my current portfolio I have open, if I had zero leverage, I would end up between 11% and 8%.  (And if dividends are raised, it could go up more).  

[Kim 7,942]

7 minutes ago, cwelsh said:

 

We try to structure things if there's a complete market crash AND all dividends are canceled, we won't be down more than 50%.  If we start getting above that, we will add a hedge in (which we're considering doing anyway).  

 

Maybe spending around 1-2% of the portfolio on a cheap hedge (like far OTM SPY puts or VIX calls) is not a bad idea.

[cwelsh 1,542]

5 minutes ago, Kim said:

Maybe spending around 1-2% of the portfolio on a cheap hedge (like far OTM SPY puts or VIX calls) is not a bad idea.

The best we've tested so far is actually using an OTM vertical put spread on SPY/SPX.  If we have an average downside protection of 20% for instance, putting in a SPX hedge that kicks on after a 17.5% market drop can be quite effective.

 

I've been back testing these for about a month now and that looks the best so far, but open to about anything.  For instance, if we did:

 

Buy Jan 2024 355 P  $2.40

Sell Jan 2024 335 P $1.58

 

That trade would cost $0.82 and give us protection of up to $19.18, which would be realized after a 20% market drop.  (E.g. if we have 20% downside protection just in our normal positions, then this covers anything over that on a MARKET drop, but not individual stock).  

 

To protect the entire portfolio, we would need 78 contracts, which would cost $6,396 -- or basically the gains from 1-2 of our trades.

 

If we match expiration periods, this could work very well.  

 

I'm currently testing what it would look like to:

 

1.  Enter hedges AS you enter collar trades;

2.  Use ETF specific hedges to reduce correlation issues (for instance, instead of using SPY on the UBS trade use KRE or the like).

 

If members have better ideas for hedging, always open to it.

 

[Kim 7,942]

Personally I would prefer just buying puts.

Lets compare the 2 options.

1) buy 355/335 debit put spread

 

2) Buy 335 put



If SPY goes down to 335 (20% drop) TODAY, the spread will make around $800 while the put will make around $1,600. This assuming IV unchanged - which of course will not happen if the market goes down 20%. If we increase IV by 15 points, the profit of the put jumps to $1,800, but the spread P/L is almost the same because the spread is much less impacted by IV change.

Of course the spread will perform better if we have a slow and gradual decline, or if the decline happens closer to expiration. So there are pros and cons for both approaches. But with VIX currently below 20, the options are still relatively cheap. And we know that markets tend to go down fast.

[cwelsh 1,542]

22 hours ago, agoro said:

Hi chris and Kim,

guest vin pointed out that there is an error in the portfolio margin circulation in this example.

Can you please clearly the interest charged is either on 6000 or on 28500 under this scenario? 

thank you.

 

Guest vin

• 
• Guest

Posted October 2

I am ur previous customer. There is a bug in ur calculation .

total amount = $34.500; portfolio margin $6000; when u r at 100% leverage, u need to pay 6% interest on the balance 34500-6000 = $28500 ;

Now we have to pay portfolio margin interest (6% on $28500  and not on $6000 ), which lowers that from 100% to  around 52%. In ideal situation in case of "qqq" stock u may get 9% annual return. Please chk and let me know so I can join.

And while such a return is amazing, the true “magic” occurs when you trade on portfolio margin.  The total cost of the above trade when entering (not including trading costs), is $34,500 (69*5*100), for a $1,500 return.  BUT it may only cost us $6,000 of portfolio margin – thus increasing our levered return to 25%, or 100% annualized.  When the portfolio is fully invested, then we stand to gain 100% on leverage.Now we have to pay portfolio margin interest (6%), which lowers that from 100% to 94% -- which we will be quite happy with.

 

I think there is a misunderstanding, you pay margin interest on everything borrowed.  So if we have a $150,000 account and have $2,500,000 invested, we would pay portfolio margin on $2,350,000.

 

On the above example when I said "only cost us $6,000 of portfolio margin," I was referring to how much portfolio margin we used up.  This is known as maintenance margin.  So on this (completely made up trade and numbers), if we didn't use margin, it would cost us $34,500 of our $150,000.  If we do use PM, we use up $6,000 of our $150,000.  So PM in this example gives us 5.75x leverage.  

 

On one of our actual trades, we would never do that, as the margin is too low.  We typically target 15x - 25x margin leverage.  So on a $150,000 trade, we would not want the PM charge (maintenance margin) to be over $10,000, and the lower the better.  

 

On my spreadsheet that was shared, I actually run interest calculations on the entire balance (so on the $2,500,000), not on $2,350,000 (e.g. do not deduct out the $150,000).  This gives me a small margin of safety on interest calculation errors or if interest rates move a little.  (On calculating returns, we use the actual numbers, but on looking at whether to enter a trade, I assume interest will be charged on the full amount).  

[DudTrader 0]

19 minutes ago, cwelsh said:

I'm not sure why you can't post (I certainly can see this post of yours).

 

We have four current trades up and are targeting posting one or two potential trades per week.  (Official and unofficial trades).  We put one up last week in fact. 

 

One of the advantages of this strategy is low maintenance.  

 

As far as direct communication goes, I don't have any PMs from you.  I'll email you directly as well.

Hi, I am new to this as well - actually I just signed up today. For the past two months I follow the "Steady Options Trades", and I am expecting a similar "Steady Collars Trades" or will that not the case? Maybe I should ask it differently: As a subscriber, where will I be able to see your last four trades and the new ones as they are contemplated/placed?

[cwelsh 1,542]

15 minutes ago, Marinus DeBruine said:

Hi, I am new to this as well - actually I just signed up today. For the past two months I follow the "Steady Options Trades", and I am expecting a similar "Steady Collars Trades" or will that not the case? Maybe I should ask it differently: As a subscriber, where will I be able to see your last four trades and the new ones as they are contemplated/placed?

There is a trades forum, here it is:  Steady Collars Trades - SteadyOptions

[Jarrrod88 3]

On 10/4/2023 at 4:55 PM, Kim said:

Maybe spending around 1-2% of the portfolio on a cheap hedge (like far OTM SPY puts or VIX calls) is not a bad idea.

or back ratio spreads

[Kim 7,942]

All members:

After you subscribe with PayPal, you will get access and welcome email within 24 hours, usually much faster. If you don't get the welcome email after 24 hours, please contact me via PM or contact form.

The structure of the service is similar to all our other services. There is a Trades forum and a Discussions forum.



Very simple and straightforward.

[JamesMapp 0]

Exciting venture with Steady Collars! The dividend capture strategy sounds intriguing, especially the focus on eliminating market risk. The leveraged returns on portfolio margin add another layer of potential gains. Love the low management requirement. Looking forward to following the journey and exploring this innovative approach!

[Reachnikhil123 0]

Hi Kim,

I signed up for this service but don't see activity on this as I expected. Can I be moved to steadyoptions main group and I will pay for difference as that group is more active?

Or send me email I can communicate on

Thanks 

[Kim 7,942]

As mentioned in the service description:

 

 

• Average Hold Period:       6 months to a year
• Tailored for long term traders
• 12-24 trades per year
   

So the service obviously is less active.

There is no option to switch services (unless you are subscribes to 2 services bundle). Please cancel one service and subscribe to another.

Thanks.

 

[falkor 241]

Hi @cwelsh and @Kim, do the numbers on the performance page for this strategy include leverage? If so, what proportion of the returns are due to leverage vs the underlying strategy?

Also, to what extent is this strategy dependent upon dividend capture? Asking as a non-US investor subject to withholding taxes on dividend income.

Many thanks!

[Kim 7,942]

Yes, the numbers include leverage. 

As mentioned in the first post:

You can still make around 12-15% with zero leverage, which is an amazing return for such low risk strategy. or you can use a regular margin account, apply 1.5-2x leverage and make 15-25%.  

Yes, it is very dependent on dividend capture.

@cwelsh anything to add?

[jvo 9]

Also, will this strategy ever be offered as part of a managed fund, similar to SteadyVol?

[baylisstic 0]

I wonder if this strategy will yield higher with leverage once interest rates goes down?

[cwelsh 1,542]

On 3/5/2024 at 10:19 PM, falkor said:

Hi @cwelsh and @Kim, do the numbers on the performance page for this strategy include leverage? If so, what proportion of the returns are due to leverage vs the underlying strategy?

Also, to what extent is this strategy dependent upon dividend capture? Asking as a non-US investor subject to withholding taxes on dividend income.

Many thanks!

it does include leverage -- but the amounts vary depending on trades and what's opened when.  The current portfolio is posted, and the account started with $150,000, so as of Mar 6, the leverage was about 8x.  

 

KALU trade was assigned/expired so haven't updated the numbers for that yet (as trade has not finished clearing).  

[cwelsh 1,542]

On 3/16/2024 at 12:48 PM, baylisstic said:

I wonder if this strategy will yield higher with leverage once interest rates goes down?

It will for the OPEN positions -- as we'll start paying less interest on them immediately.  But for new ones, no, as interest rates are baked into option prices.

 

There's a reason if you open a collar trade like this on a major stock immediately before ex-dividend, the yield you get is virtualy identical to the interest cost of the trade.

[OpTr 2]

If I understand correctly, this strategy started in September 2023 and has an average holding period of 6-12 months. I am wondering about the returns reported within just a month or two after the strategy was started (e.g., for October 2023) despite the long holding period. I assume the reported returns are realized and not unrealized returns. Can you please clarify? Thanks.

[Kim 7,942]

It's based on mark to market.

[drkats 0]

Curious if you've considered eliminating/decreasing the interest rate risk by "selling a box" on something like spx, instead of borrowing at margin rates?  You can currently sell an spx box and pay about 5% (risk free rate).  Spx may not be ideal given 1256 treatment but it will still be better than ibrk pro rates.  Thanks!

[cwelsh 1,542]

30 minutes ago, drkats said:

Curious if you've considered eliminating/decreasing the interest rate risk by "selling a box" on something like spx, instead of borrowing at margin rates?  You can currently sell an spx box and pay about 5% (risk free rate).  Spx may not be ideal given 1256 treatment but it will still be better than ibrk pro rates.  Thanks!

We actually did this exact thing in our first iteration of trading/testing.  And yes the margin rate drops, but you get screwed by IBs algorithms on leverage.  They have an absolute 30x margin rate on absolute value of positions that you cannot exceed.

 

So for instance if I open this position in my $100,000 account:

Buy Put $100

Sell Put $100

Buy Call $100

Sell Call $100

for a net $0 trade, IB counts that as $400 towards your 30x limit.  

 

This is true even if you are well inside the margin requirements for risk based trading and is true even on a ZERO risk trade -- which we learned the hard way the first time doing this.

 

For instance if stock ABC is trading at $100 and I buy options that expire the next day (no interest):

Buy 100 shares of ABC  ($10,000)

Sell 1 call at a strike price of 100 for $10  ($1000)

Buy 1 put at a strike price of 100 for $5  ($500)

Then I have guaranteed a $5 return with zero risk.  The stock will either be called away or put for $100.  

 

So on IB's risk based margin calculation, I have a $0 trade and I should be able to trade an infinite position (as many as the market makers will fil).  BUT IB will count this towards the 30x as $11,500.  (They take the absolute value of all positions -- so a short call and long put don't offset).

 

So if I wanted to borrow $1.5m on my $150k account (10x leverage), I would need 15 contracts of a $1000 box, which might look like:

Sell 1 SPX 4000 Call  

Buy 1 SPX 4000 Put

Buy 1 SPX 5000 Call  

Sell 1 SPX 5000 Put

Then I receive $99,710 and owe $100,000 when done (courtesy boxtrades.com).

 

IB then ADDS the cost of the long and short call together -- but takes the absolute value so they don't offset at all.

 

 

In other words, funding from box spreads eats all of my leverage I want.

 

 

[drkats 0]

10 minutes ago, cwelsh said:

We actually did this exact thing in our first iteration of trading/testing.  And yes the margin rate drops, but you get screwed by IBs algorithms on leverage.  They have an absolute 30x margin rate on absolute value of positions that you cannot exceed.

 

So for instance if I open this position in my $100,000 account:

Buy Put $100

Sell Put $100

Buy Call $100

Sell Call $100

for a net $0 trade, IB counts that as $400 towards your 30x limit.  

 

This is true even if you are well inside the margin requirements for risk based trading and is true even on a ZERO risk trade -- which we learned the hard way the first time doing this.

 

For instance if stock ABC is trading at $100 and I buy options that expire the next day (no interest):

Buy 100 shares of ABC  ($10,000)

Sell 1 call at a strike price of 100 for $10  ($1000)

Buy 1 put at a strike price of 100 for $5  ($500)

Then I have guaranteed a $5 return with zero risk.  The stock will either be called away or put for $100.  

 

So on IB's risk based margin calculation, I have a $0 trade and I should be able to trade an infinite position (as many as the market makers will fil).  BUT IB will count this towards the 30x as $11,500.  (They take the absolute value of all positions -- so a short call and long put don't offset).

 

So if I wanted to borrow $1.5m on my $150k account (10x leverage), I would need 15 contracts of a $1000 box, which might look like:

Sell 1 SPX 4000 Call  

Buy 1 SPX 4000 Put

Buy 1 SPX 5000 Call  

Sell 1 SPX 5000 Put

Then I receive $99,710 and owe $100,000 when done (courtesy boxtrades.com).

 

IB then ADDS the cost of the long and short call together -- but takes the absolute value so they don't offset at all.

 

 

In other words, funding from box spreads eats all of my leverage I want.

 

 

Thank you for the detailed explanation.  I see what you mean.  So that additional margin req decreases your ROR.  It makes sense to pay 20% more interest in order to be able to trade almost 100% more.  What about selling treasuries?  I heard that ibrk requires 250k min transaction but one is borrowing at RFR.  I am with TOS mainly and just opened an ibkr pro account so am not as familiar.  Thanks again Chris.

[falkor 241]

What if one creates 2 accounts in IBKR, sold a box in one, then transferred the cash into the other? Presumably the second account would have a clean slate for the 30x rule?

 

 

[cwelsh 1,542]

32 minutes ago, falkor said:

What if one creates 2 accounts in IBKR, sold a box in one, then transferred the cash into the other? Presumably the second account would have a clean slate for the 30x rule?

 

 

No because you can't transfer all of the cash out as that destroys your collateral requirements (we tried that too ).  Then you blow through your risk margin.

[cwelsh 1,542]

43 minutes ago, drkats said:

Thank you for the detailed explanation.  I see what you mean.  So that additional margin req decreases your ROR.  It makes sense to pay 20% more interest in order to be able to trade almost 100% more.  What about selling treasuries?  I heard that ibrk requires 250k min transaction but one is borrowing at RFR.  I am with TOS mainly and just opened an ibkr pro account so am not as familiar.  Thanks again Chris.

Same thing.  If you sell $100,000 of US treasuries you have now eaten up $100,000 of 30x margin.

 

When we did this for the year up to actaully launching we learned:

 

A.  On normal portfolio margin, you can achieve a max leverage rate, in real dollars, of about 20x (sometimes as high as 22x) and a low of about 15x; or

B.  Use a box or other method and we could never get above 5x-7x.  

 

It makes a big difference.

 

This is also why we have to be "careful" in our trade selection.  Let's say trade A:

 

$150,000 trade that gives you a max gain (after interest) of $1,000 and charges you $500 margin interest (so 200% return on margin);

$150,000 trade that gives you a max gain (after interest) of $2,000 and charges you $2,000 margin interest (so only 100% return on margin).

 

Which trade is better?  Well it looks like the first one  BUT realize you still have that 30x thing hanging in the background.  So while your on risk margin (portfolio margin) is 2x higher on the first, it is actually 2x higher as to the 30x on the second one.

 

Only there's another layer -- how did we get to that $150,000?

If trade one is:

$200,000 of stock

-$49,000 of calls

$1,0000 of puts

Then that counts $250,000 against the 30x margin.

Whereas if we have a trade:

$400,000 of stock

-$200,000 of calls

$1,000 of puts

that counts $601,000 against the 30x margin.

 

So even though the second trade above has a 50% margin of safety and the first one only has a 25% margin of safety, the second one counts almost 3x as much against your 30x limit. 

 

Because IB takes the absolute value of each position it is impossible to hit the 30x limit on risk managed side margin.  

 

The highest I think I've ever gotten is about 25x.  I consider 20x "fully" invested most of the time.

 

The 30x is also a dynamic number -- which means if the stock price goes down, volatility goes up, call goes down in value, and put goes up in value -- you can put yourself into a margin call situation as to the 30x -- even if the portfolio risk isn't changed.  

 

Which is a reason to not be 100% levered and have SOME room available for market moves.

[falkor 241]

This discussion is very insightful. Thank you.

[drkats 0]

On 4/2/2024 at 3:14 PM, cwelsh said:

Same thing.  If you sell $100,000 of US treasuries you have now eaten up $100,000 of 30x margin.

 

When we did this for the year up to actaully launching we learned:

 

A.  On normal portfolio margin, you can achieve a max leverage rate, in real dollars, of about 20x (sometimes as high as 22x) and a low of about 15x; or

B.  Use a box or other method and we could never get above 5x-7x.  

 

It makes a big difference.

 

This is also why we have to be "careful" in our trade selection.  Let's say trade A:

 

$150,000 trade that gives you a max gain (after interest) of $1,000 and charges you $500 margin interest (so 200% return on margin);

$150,000 trade that gives you a max gain (after interest) of $2,000 and charges you $2,000 margin interest (so only 100% return on margin).

 

Which trade is better?  Well it looks like the first one  BUT realize you still have that 30x thing hanging in the background.  So while your on risk margin (portfolio margin) is 2x higher on the first, it is actually 2x higher as to the 30x on the second one.

 

Only there's another layer -- how did we get to that $150,000?

If trade one is:

$200,000 of stock

-$49,000 of calls

$1,0000 of puts

Then that counts $250,000 against the 30x margin.

Whereas if we have a trade:

$400,000 of stock

-$200,000 of calls

$1,000 of puts

that counts $601,000 against the 30x margin.

 

So even though the second trade above has a 50% margin of safety and the first one only has a 25% margin of safety, the second one counts almost 3x as much against your 30x limit. 

 

Because IB takes the absolute value of each position it is impossible to hit the 30x limit on risk managed side margin.  

 

The highest I think I've ever gotten is about 25x.  I consider 20x "fully" invested most of the time.

 

The 30x is also a dynamic number -- which means if the stock price goes down, volatility goes up, call goes down in value, and put goes up in value -- you can put yourself into a margin call situation as to the 30x -- even if the portfolio risk isn't changed.  

 

Which is a reason to not be 100% levered and have SOME room available for market moves.

Really appreciate the explanation Chris.  Wrapping my mind around this!!!

[drkats 0]

Hi @cwelsh, just joined this forum and looking at the existing trades.  On your T collar, your call is at 15 and put at 13.  How do you look at that potential risk?  Based on the numbers you provided, you have $1.83 per share risk with div at only about 0.28 x 4 if everything goes great.  If T is under $14, the losses + margin rates become significant.  Not disputing the trade at all, simply attempting to understand how to think about that delta.  Thank you!