≈ Equip yourself with these three weapons ≈
The earnings announcement is like a bi-polar dragon. Some quarters he’s friendly and flies you to a pot of gold. Other quarters he’s evil and reigns fire down on your positions. Dumb traders walk into the dragon’s domain again and again, never quite learning that they don’t have to face him naked. Smart traders gird their loins and stockpile weapons to fight off his fiery flames.
Here are two of their favorite weapons: short calls and long puts.
Selling calls on a stock position creates a covered call. The premium received acts as protection against downward moves in the stock price. If you own a $100 stock and sell a call for $3, then you’re protected against a 3% loss in the stock after earnings.
Buying puts on a stock position creates a protective put. It acts as insurance and limits your exposure if things turn sideways. If you own a $100 stock and buy a $95 put for $3, your max loss shrinks from $100 to $8 ($5 plus the $3 put cost).
By combining both weapons, you create something even more powerful – the collar.
We teach about all three of these techniques in our Tackle 25 course. Have you taken it yet? Or are you still facing the dragon naked?
Chart of the Day
Collar Risk Graph
Here’s the risk graph of a collar position. Note how the downside risk is far less than long stock. Savvy traders who don’t want to exit before earnings and don’t want the open-ended risk can use it to protect themselves.
Video of the day
What is a Collar Option Strategy
The Collar is a neutral protective options strategy that involves simultaneously buying OTM Puts and selling OTM Calls against a specific holding in your portfolio (a long position).
Traders Lounge 11 AM EST
Join the coaches in this live lounge, ask questions, discuss ideas or just sit back and listen to veteran traders discuss market conditions.
Halftime Report 12:30 PM EST
The Halftime Report starts at 12:30 EST and covers what news is driving the market, chart analysis from the movers and shakers of the day and fun in a way that only Matt and Tim can deliver.
Cash Flow Club 8:30 PM EST
Join our weekly Cash Flow Club to learn options strategies from one of the Coaches at Tackle Trading.
Financial freedom is a journey
Sign up now and gain unfettered access to all of the quality content and powerful Scouting Reports that our Pro Members enjoy for 15-days absolutely free with no strings attached and let us show you what your trading has been missing.
Tackle Trading LLC (“Tackle Trading”) is providing this website and any related materials, including newsletters, blog posts, videos, social media postings and any other communications (collectively, the “Materials”) on an “as-is” basis. This means that although Tackle Trading strives to make the information accurate, thorough and current, neither Tackle Trading nor the author(s) of the Materials or the moderators guarantee or warrant the Materials or accept liability for any damage, loss or expense arising from the use of the Materials, whether based in tort, contract, or otherwise. Tackle Trading is providing the Materials for educational purposes only. We are not providing legal, accounting, or financial advisory services, and this is not a solicitation or recommendation to buy or sell any stocks, options, or other financial instruments or investments. Examples that address specific assets, stocks, options or other financial instrument transactions are for illustrative purposes only and are not intended to represent specific trades or transactions that we have conducted. In fact, for the purpose of illustration, we may use examples that are different from or contrary to transactions we have conducted or positions we hold. Furthermore, this website and any information or training herein are not intended as a solicitation for any future relationship, business or otherwise, between the users and the moderators. No express or implied warranties are being made with respect to these services and products. By using the Materials, each user agrees to indemnify and hold Tackle Trading harmless from all losses, expenses and costs, including reasonable attorneys’ fees, arising out of or resulting from user’s use of the Materials. In no event shall Tackle Trading or the author(s) or moderators be liable for any direct, special, consequential or incidental damages arising out of or related to the Materials. If this limitation on damages is not enforceable in some states, the total amount of Tackle Trading’s liability to the user or others shall not exceed the amount paid by the user for such Materials.
All investing and trading in the securities market involves a high degree of risk. Any decisions to place trades in the financial markets, including trading in stocks, options or other financial instruments, is a personal decision that should only be made after conducting thorough independent research, including a personal risk and financial assessment, and prior consultation with the user’s investment, legal, tax and accounting advisers, to determine whether such trading or investment is appropriate for that user.