Home MarketXLS
Dashboard MarketXLS
Screener MarketXLS
Options Profit Calculator MarketXLS
Stock Ranks MarketXLS
Spreadsheet Builder MarketXLS
Documentation MarketXLS
Logout MarketXLS

How to Utilize the ThreeWay Collar Hedge

Written by MarketXLS Team on 
Mon Jan 16 2023
 about MarketXLS
How to Utilize the ThreeWay Collar Hedge - MarketXLS
Boost your market advantage with MarketXLS. Real-time, enterprise-grade data. Book a demo or subscribe now!
How to Utilize the ThreeWay Collar Hedge - MarketXLS

,

Effective Utilization of the Three-Way Collar Hedge Strategy

The Three-Way Collar Hedge is an effective strategy for controlling volatility and mitigating risk for option traders. The Three-Way Collar Hedge employs the usage of three options at the same time and together, a qualified covered call, a protective put option, and a long stock position. This strategy allows traders to see a gain from their investments and to buffer against potential losses. Here are some tips for utilizing the Three-Way Collar Hedge strategy as effectively as possible.

Protective Put Option

The Protective Put option acts as an additional form of insurance against losses and can help to mitigate risk by protecting share value in the event of a market downturn. The protective put option works by securing any losses at a certain pre-determined price. The investor buys ‘put’ options with a strike price lower than the current market value of the stock and, if the stock drops, the investor can exercise their put option to sell the stock and receive their predetermined price.

Qualified Covered Call

The Qualified Covered Call is the second component of the Three-Way Collar Hedge. This is essentially a type of ‘covered call’ where the investor buys the same amount of calls as they have shares in the same underlying security and holds them until they expire. This allows traders to generate income from their share position in a market that has little to no volatility. This strategy works as a hedge and can continue to generate income in both neutral and bearish markets.

Long Stock Position

The third and final component of the Three-Way Collar Hedge strategy is the Long Stock Position. This requires the investor to purchase a set amount of the underlying security, usually near the current market price, and then hold it until the options expire. This position allows the investor to benefit from any potential bull markets, or increase in share value, and benefit from the premium income from their qualified covered call option.

Risk Management & Portfolio Diversification

By utilizing the three-way collar hedge, investors can effectively manage volatility and reduce potential losses. This strategy also allows for some measure of portfolio diversification by helping to offset potential losses from other positions. This way, investors can benefit from a more balanced portfolio by setting up a ‘risk-neutral’ position.

Put-Call Parity and Profit Neutral Positions

Another benefit of using the Three-Way Collar Hedge is the ability to create ‘Profit Neutral’ positions by taking advantage of Put-Call Parity. Put-Call parity is the relationship between the prices of a put and call option and their underlying asset. By taking advantage of this concept, investors can employ a variety of strategies to help create a more balanced portfolio while still maintaining their overall risk level.

MarketXLS – HelpingMake Trading Easier

At MarketXLS, our goal is to make trading easier for investors. We provide a suite of customized tools to help investors make the best decisions for their portfolios. Our option analytics platform is designed to help traders create and manage their Three-Way Collar Hedge positions easily and effectively. We help you to make trading faster, simpler, and more profitable.

For more info, please visit MarketXLS.

Here are some templates that you can use to create your own models

Search for all Templates here: https://marketxls.com/templates/

Interested in building, analyzing and managing Portfolios in Excel?
Download our Free Portfolio Template
I agree to the MarketXLS Terms and Conditions
Call: 1-877-778-8358
Ankur Mohan MarketXLS
Welcome! I'm Ankur, the founder and CEO of MarketXLS. With more than ten years of experience, I have assisted over 2,500 customers in developing personalized investment research strategies and monitoring systems using Excel.

I invite you to book a demo with me or my team to save time, enhance your investment research, and streamline your workflows.
Implement “your own” investment strategies in Excel with thousands of MarketXLS functions and templates.

We respect your privacy and will never share your email.
MarketXLS is a complete Excel stock solution

Kevin Hsu

StockKevin.com

I have used lots of stock and option information services. This is the only one which gives me what I need inside Excel

Lloyd Lenase

Option Day Trader

MarketXLS is a data junkie’s dream. It gives me the flexibility to mine for hidden treasures.

Dave

Swing trader since 2011

I like to access historical closing prices on a particular date. That makes tracking performance easy.

Patrick Cusatis, Ph.D., CFA

Associate Professor of Finance - Penn State University

Get Access to 1 Billion Usable Market data points IN YOUR EXCEL SHEETS WITH EASY TO USE EXCEL FUNCTIONS

Get started today

🎉 Exciting news! 🎉

You are invited to join our Discord Channel.

Interact, learn, and grow with experts in the markets!

Join our Discord