Market Analysis and Strategies

[TechAnalyst]

Just going short at $910/t costs less margin?($50 initial plus $50 increased margin if market moves to $960) requires then $100/t margin at $960/t.

Makes no sense to do the Collar spread then… even if the risk is less at the expiration because the reward is less as well… put is $100/t out of the money.

Hard to understand how this makes any sense.

Cheers

There are two separate issues here.

The reason for the collar compared to being short is to keep an additional $100/t upside potential gain in place in exchange for the added $100/t risk.

The short at $910 is a better plan if you think the market is more likely to fall than rise. The collar would make more sense if you expected the opposite but still wanted to limit your risk.

As far as cash flow and margin requirements go, I'm not sure where you got the initial margin requirement of $50/t from compared to the minimum I see and have used in this example of $79.50/t.

If you want to use your $50, then the margin requirement when the call was worth $75 and the put $25 would be up to $50+(75-25)=100/t.

I would suggest keeping net price and margin requirement considerations separate for clarity.

Hope that helps.

[TOM4CWB]

There are two separate issues here.

The reason for the collar compared to being short is to keep an additional $100/t upside potential gain in place in exchange for the added $100/t risk.

The short at $910 is a better plan if you think the market is more likely to fall than rise. The collar would make more sense if you expected the opposite but still wanted to limit your risk.

As far as cash flow and margin requirements go, I'm not sure where you got the initial margin requirement of $50/t from compared to the minimum I see and have used in this example of $79.50/t.

If you want to use your $50, then the margin requirement when the call was worth $75 and the put $25 would be up to $50+(75-25)=100/t.

I would suggest keeping net price and margin requirement considerations separate for clarity.

Hope that helps.

In a round about way… it does.

If I were to be able to know that the futures were going to close on expiration of the option say $1000 , I would be best to sell the $1000/t call for $50 now, then sell the cash canola on that expiration day for the same $1000/t. Price received total $1050/t total for my canola.

Cheers