Collar (bullish)
...or Buy Call / Write Put
Position
Type
Strike
Expiration
Quantity
Short
Put
ATM (0)
Long term
1
Long
Call 
OTM (+1)
Long term 
1
         
         
Example:
Short 1 Oct 60 Put @ 4 1/4
Long 1 Oct 65 Call @ 3 1/8
Opinion: Bullish to very bullish
  
   
Description:
If the strike price of the two options is the same, a Long Call/Short Put position is equivalent to a Long Stock position. However, this strategy is often designed using options with two different strikes. For example, with XYZ at $60, the investor would build the spread using the 65 Call and the 60 Put (A.K.A. – Collar).

When to use:
Because this position is either equivalent to long stock (same strike price) or closely approximates long stock (split strikes), the investor utilizing this strategy must be aware of its risk/reward profile. (Unlimited risk and unlimited reward!)

This strategy is most often used when XYZ is near the mid-point between the two split strike prices. First, the spread is often established for little or no debit. And secondly, it provides a little room for XYZ to decline before the Put becomes in-the-money.

Profit & Loss Characteristics:
Like Long Stock, the spread’s potential is unlimited. Losses are unlimited because the investor could end up with a long stock position if assigned on the short Put. Because of this fact, the investor must carefully consider the initial size of the spread!

Break-even Point:
  • If debit spread: Call strike price + spread debit
  • If credit spread: Put strike price – spread credit

Volatility:
Varies. If XYZ is near Long Call strike price, time decay is a negative for the spread. If XYX is near Short Put, time decay is a positive.

Assignment Risk:
The investor must watch XYZ for possible assignment if XYZ declines below the Put’s strike.