Assuming a collar strategy where I buy the underlying stock with a short call and long put option on it. Would the call be assigned away like a covered call, leaving the put option viable or would the put option disappear when the underlying is assigned away. (Put option's expiry date is further than the call option)
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Going long a stock, selling call options, and going long a put is a very complex way to gain exposure to an underlying security. Do you want a net long or short position?– PowersNov 2, 2014 at 15:10
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if the put expiry is further, then you would be holding a naked put when the call gets assigned.– Victor123Feb 10, 2015 at 20:36
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@Powers - Yes, Going long a stock, selling call options, and going long a put is a very complex way to gain exposure to an underlying security. It is the synthetic equivalent of a bullish vertical spread unless the expirations are different, in which case it's a diagonal spread.– Bob BaerkerJun 9, 2020 at 20:25
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@Victor123 - After assignment of the short call, the OP would be left with a long put not a naked put.– Bob BaerkerJun 9, 2020 at 20:26
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2 Answers
The put will expire and you will need to purchase a new one.
My advice is that the best thing would be to sell more calls so your delta from the short call will be similar to the delta from the equity holding.
A long stock collar (aka collared stock) consists of long stock, a short OTM call and a long OTM put. Typically, both options are OTM though there's no rule that says that they must be. Conceptually, it consists of a covered call and a long protective put. If one of the options expires at a later date then the position would be considered a diagonalized long stock collar.
If the short call is assigned early, you are left with a long put. If you started with a diagonalized collar (your example) then regardless of when you are assigned on the covered call component (early or on the short call's expiration date), you are left with a long put with a later expiration.
answered Jun 9, 2020 at 20:20
