How I completely removed risk out of my trade | Bullish Installment Collar Strategy

In this video I will show you how I completely removed risk out of my Installment Collar trade.

The installment collar is a variation of the traditional collar and it involves the purchase of an ITM long term put against a long position in the underlying, combined with the writing of a very short term call. The underlying could be a stock or a futures contract.

The long term put option is usually more than 6 to 12 months out in time, while the short term call is usually a weekly or monthly option.

The short call expires or is closed and then replaced as many times as possible. This helps finance the long term put, but on an installment basis and hence the name.

Ideally, you get the downside protection you always wanted in a low cost, no cost, or even a negative cost manner.

Does a bearish version also exist?

The installment collar is a bullish setup. But a bearish version is also possible. The bearish version involves the purchase of an ITM long term call against a short position in the underlying, combined with the writing of a very short term put.

But since short selling of stocks is allowed only for intraday, the bearish version can only be initiated on a futures contract.

Also, the ITM long term call options generally trade richer than the corresponding ITM put options. Therefore, the upside protection is more expensive.

My recent bullish trade:

To understand the installment collar options strategy, let’s take a look at my recent bullish trade.

On June 24th, 2020, I took this trade -

Buy 1 lot of Nifty August Future at 10412
Buy 1 lot of Nifty December 12000 Put at 1610

Calculations:

Maximum loss at expiry = [(Futures’ Purchase Price + Premium Paid for the Long Put) - Long Put Option’s Strike Price] x Lot Size
= [(10412 + 1610) - 12000] x 75 = ₹1650

The maximum amount I could lose on this trade is ₹1650 and also I would realize this loss only if I hold the 12000 Put option to expiry, that is, to December 31, 2020. Also, the maximum loss at expiry would go down every time I sell a weekly call.

On the same day, I sold the 25th June expiry 10600 ce at 21.

On 25th June, I bought to close the 25th June expiry 10600 ce at 0.05 making a profit of ₹1522.12 after commissions.

On June 26th, 2020, which was a Friday, I sold to open the 31st December expiry 12000 ce at 142 as my forecast was that Nifty would make a gap down opening on Monday. My forecast turned out to be correct and on June 29th, 2020, I bought to close the 31st December expiry 12000 ce at 129 making a profit of ₹910.51 after commissions.

On the same day I sold the 2nd July expiry 10700 ce at 8.

On 2nd July, I bought to close the 2nd July expiry 10700 ce at 0.05 making a profit of ₹548.7 after commissions. On the same day, I sold the 9th July expiry 11000 ce at 9.7.

So, the total profit I made so far is 1522.12 + 910.51 + 548.7 = ₹2981.33.

If you remember the initial risk was just ₹1650. Now I covered the entire risk and also made some additional profit. Also I am sitting on another ₹2017.5 unrealized profit.

I have 23 weeks more to go to sell weekly options and pocket the premium and if in any of the weeks Nifty ends at or slightly above the strike price of the sold option I would close the entire position in a much bigger profit.

Now let’s look at the risk graph of the current position of my trade to understand this better. It is clearly evident I would make a profit of ₹14663 if Nifty ends at 11000 at expiry.

To know more about the rules and management of the Installment Collar strategy click on the link in the description.

Remember that this is not a recommendation. Trade at your own risk.

[abhinandansanthosh]

The beauty of your channel is, you come directly to the point and do not lag anywhere, and explain with practical examples and not telling stories. And length of the video is so perfect 👌 we can get what we want within minutes, so far this is the best channel I came across. Other channels keep dragging and tell stories and make videos so lengthy to tell one small statergy, viewers get bored. Thank a lot Ravi. Keep teaching and keep growing. God bless you 😇

[mssvadali]

Very nice work! What delta do you use to sell your OTM weekly call?

[MalhotraVikaspareted]

super! you don't leave single expected question unanswered. I understand it needs good preparation ! 😍keep it up!

[ArunKumar-niue]

Hi Mr.Ravi one request to you that pls make videos with little theory and more graphical.. i.e easy to understand and pls avoid eloborated detail of entry and exits lik ( sold to open & buy to close) since it's making confuse (make it shorter as sold 11000PE @20 & close 11000PE @0.05). Thanks for sharing awesome knowledge.. keep improving nd educate us 🤝🤗

[growwealth]

excellent... keep up the good work... very helpful... plz upload more videos on the option strategies you regularly use...

[varunshelke]

Kudos to you for this strategy...
But how do you decide the strike price of weekly option to be sold ???
How much probability option do your u sell in such case???

[anirudhb]

Why would you go for August futures, is it because of Discounted price for next months contract. Or because you don't want to do a rollover each month .
Also would using a synthetic future be a better option in this strategy with respect to M2M position.

[ingitmodi]

Excellent ~good strategy....Just one small clarification ....I will like to have/ confirm....not to exit from future and put purchased until nifty move above 11000.... Till that time sale call above 11000 in weekly?

[manojvarmaalluri]

little bit confused as you are saying you have 23 months for scalping profits from short calls every week. but here you have took position in aug futures and dec long term option so there are only 9 weeks approximately for scalping profits from short calls because you have to roll over your nifty fut from aug to nov series during the last week of aug and then we may have premium on the future contract and it would be added and more over we may not get the risk reward for the nov fut and dec option contract at the aug month end. how to mitigate it.thank you

[prateekshrivastava]

How do you manage to buy 12000 put option of 31st Dec expiry when nifty was around 10500 since no volume would have been there for 12000 put option?
How your trade will take place with such less open interest?

[prasadkale]

Instead of long future can we use synthetic future , by this we reduse our capital requirement. and MTM daily cash adjustment.

[navaneethanataraj]

Hi Ravi, I have few questions on this?. What is the use of long term future + long PE (I could simply sell far OTM weekly CE option). I am not able to understand the advantage with this strategy?. Can you please share your thoughts?. Trade 1:- Buy futures contract + Buy ATM PE + Sell weekly CE option Trade 2:- Sell weekly CE Option. What is the difference between Trade 1 and Trade 2?

[rajareddy]

Hi Its really helpful and great stratagy.
If you have time could you please answer below question on margin for selling options.
If we take any hedging closed trade, daily available cash and margin used is changing drastically.
How do we calculate exact margin required to be in the trade where ever market goes in closed stratagies.

[guruprasad]

Hi Ravi, Does 20k margin is enough to enter this trade ?

Also would like to hear from you is there any weekly/ monthly income strategy..!

[zaiasolomon]

sir is their any book you recommend? Thank you.

[statusmart]

Sir im planning to do dual calender put spread for every week. I'm A beginner in options selling just wanna get your advise in this sir. Is it good for a novice trader like me?. Vix is below 25 so can i start doing it sir on monday as you said Monday is the right time to do

[vasantsinghvi]

I would like to know the installment collar set up in the current status of nifty as I am not able to get to the point.

[vivekjain]

Hi Ravi. What issues will a strategy based on buying weekly Puts for downside insurance (say 1000 pts away) instead of buying LT Put face?

[krishnashah]

In these strategy we required cash for daily MTM settlement of future?? or i will be settle with option profit ???

[vsv]

Hi thanks for sharing the strategy - your videos are very informative. Is this strategy still valid for the present day market also. I tried in Opstra with purchase of Future of Aug 2021 covered with December deep ITM Put option of 17000 - But the payoff diagram looks little different from the one you have shown and profit calculation is also different. Screenshot posted below. Please comment.

Screenshot 2021-05-29 at 5.09.30 PM