I write about options collars regularly here. My emphasis in every article so far is what I emphasize in almost all of my investing work: risk management, save it first, then grow it as much as you can.
This time around, the collar I’m going to show you is, shall we say, a little on the wild side. Pick up the wallet.
First, I’ll show you the layout of the collar, then I’ll explain the bells and whistles surrounding it and how it’s likely to affect it. I deal with Bitcoin (BTCUSD), specifically the Ishares Bitcoin Trust ETF (IBIT), the largest Bitcoin exchange-traded fund (ETF) around.
The first thing to notice is the “Grade IV” in the image below, which is about 37%. This means that IBIT is actually at the lowest 37% of its 12-month volatility range. As I see it, a volatile asset class like this is always a potential collar strategy, because the portion of a covered call option on the collar can easily pay for whatever protection I employ.
The collar is multiplied by $60 on the call side and $30 on the put side. As I explained below, the cost is very low to go abroad for more than six months. That’s because, in this case, unlike most of my collar presentations, I’m taking 25% more damage than the current level.
In return, I get more than 50%, and the cost of options is very low, only about 2.4%. This is two or three times less than most examples I have shown in the past. But this is the wild side!
The IBIT technical chart is ideal for a collar. Or as I refer to it, the “dog collar.” I use this term to describe a stock or ETF that is low in price, shows minimal signs of short-term downside, and has minimal average volatility.
IBIT currently checks all three of these boxes. It landed back in this area in 2024 and stayed there for months. This forms a strong support level in the $32 to $35 area, from where it is written on Monday morning.
I can strike at $35 or just below, but this protection is more expensive than $30, as shown above. This is cheap “insurance” against further declines in IBIT, but I still limit my losses to 25%. Bitcoin is down 50% since October, to put that into perspective.
