How To Buy A Stock and Collar Together
A collar is a stock/option combination created when a stock is purchased along with two options positions: a Covered Call and Married Put combination. The collar limits both downside losses and upside gains through the expiration date. A collar can be initiated on an existing position or with a buy order on a stock. Here are the steps to buy a stock and collar at the same time.
1. Click the Opt (option) button on the bottom of the chart pane to open the Option Strategies menu
2. Select Stock + Collar
This places an order ticket for the stock and options positions on the chart
3. Select Expiration Date for the options
Change the expiration date either to closer or further dates using the arrows
Alternately, select a specific expiration date from the drop down menu
4. View available strike prices with the limit price line
Click and drag the Limit line for both option positions between the available strike prices for the selected expiration date. These are represented by the hash marks at the left of the P&L Zones. Simply stop at the desired strike for the contract.
5. Select the order type desired for the contract
Either leave the order set on Limit, or select a different order type from the drop down menu.
6. Set a Limit Price (optional)
The Limit slider shows the spread between the natural (in this case, the bid) and the far (in this case, the ask). To set a price within the spread at which to place your order, click at any point on the slider. The limit value is seen in the price field next to the "Lmt" order type.
7. Use a Step to Limit order (optional)
Another way to take advantage of the spread is the Step Limit order. Choose the Step Limit order from the drop down menu.
Set the beginning of the slider at the limit price desired for the initial order. This will be the limit price at which the order will be entered.
Over the predetermined time period the limit price will be automatically modified down from the initial entry price toward the Natural (or selected) price. The step limit order will attempt to secure a preferable fill price in this process. Modification stops if no preferable fill is received and the limit price reaches the Natural.
8. Submit the order
Click Buy to Open Collar
Click Place Order to confirm and submit
9. View The Order
The shares of stock will be purchased simultaneous to the short call and long put. All will now appear on the chart. The P&L zones show the potential profit as it relates to the stock's current price. Through the expiration date, the upside gains and downside losses are limited to the stock price plus or minus the strike price plus and the net premiums. Should the options expire without being exercised, the stock position is retained.