#SueCollar TGT

One of the collars I had set up was on TGT, which of course had earnings today. The original stock purchase was at $111.84, and after a roll last week, was protected down to around $96. It’s really run away to the upside. There is plenty of premium in the position still, especially since the Dec13 short 96 puts have become very illiquid. It looks to me that the 300 share position will net out around $503 in profit (including the dividend) by the Dec 13 expiration, a hold of about 2 months. This would equate to roughly an 8% annualized return….right in my target. The ROR is huge given the risk controls in this strategy.

A couple comments on this:
1. TGT is an interesting hold for this strategy due to their dividend timing. Since the ex div is the day before earnings, it is really hard to lose shares to someone wanting to take the dividend—since the short calls retain such high premium the day before earnings.
2. This is a perfect example of having to stay focused on a low-risk/low-return strategy. If the loss of the put premium is too much to bear, it’s the wrong strategy for you (you might be saying “coulda woulda shoulda made $4600 just holding shares vs $503 on the collar”). I get it, it’s valid. But I really appreciate the controlled risk on these things, the easy sleep at night.

On a side note, since I’ve been training intensely on vol for a couple years at Option Pit, I decided there needs to be more vol strategy folded into the collars. I’m now trying to keep the vol spread at less than 3 points between the calls being sold and the puts being bought. To accomplish this the calls need to be sold ITM, vs ATM. ITM calls have a higher vol to counter the higher vol of OTM puts.

Let me know if there’s any interest in this going forward–I get if it’s too boring 🙂

Sue