How it works:

Dynamic Collar:
The nature of our strategy is to take what we believe is the best of traditional equity collars and add a dynamic element, which allows us to be responsive to share price, market moves and current events.

Our first step is to purchase “put” protection, generally extending only six months, which allows us to adjust the “floor” based on the movement of the share price and/or the changing needs of our clients. If the stock price moves higher, “put” protection can be adjusted higher (“rolled up”) to reflect the appreciated value of the underlying security. It is possible that this put cost may never be offset by the sale of calls.

Covered calls, or “the cap,” are usually sold on a monthly or short-term basis. The time frame will be adjusted based on individual client needs and the assessment of specific option
values. The cash generated from selling “calls” may be used to reduce the cost for the “put” protection and ideally complement the overall performance of the security. At times, to
capitalize on the underlying market volatility, calls may be bought back and resold prior to their expiration. This cycle may continue based on the changing share price in an attempt to lock in profits, collect additional premium, allow room for the stock to move higher, or limit losses. In addition, the income generated by the underlying position may be used to create a diversified portfolio, to repay debt, for a cash extraction and/or for liquidity. There is the potential for loss if a call must be repurchased for more money than its original selling price.

If the underlying share price exceeds the option strike price and the investor does not want to sell the underlying shares, the call contract may be closed out, eliminating the sale of the underlying equity. If the shares are “called away” prior to the expiration date, new shares can be purchased to fulfill the delivery obligations of the contract, thus avoiding a “constructive sale.”