This Day On The Street
Continue to site
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here

Mutual Fund 'Collars' Losses, Limits Gains

NEW YORK ( TheStreet) -- The curiously named Collar Fund (COLLX), which was started last June, follows a unique strategy among stock mutual funds. And its volatility resembles that of a bond exchange traded fund.

"Collar" may ring a bell, as it's named for an options strategy. A collar consists of buying a stock, selling a call option and using the proceeds from the call sale to buy a put option. The Collar Fund targets call options at about 10% out of the money and put options at about 10% out of the money, dramatically reducing volatility. The fund is managed by Summit Portfolio Advisors, a firm that has followed such a strategy for separate accounts for several years. The fund ought to have a high correlation to the stock market but with a fraction of the volatility.

I had a chance to talk with lead manager Tom Schwab. He gave the following example to illustrate what the company does. It owns proprietary software that screens for attractive options pricing among mostly large-cap stocks. If the screen finds a stock trading for $100 a share, managers will look at the options pricing. They would be inclined to sell a call option struck at $110 and buy a put option struck at $90.

A call option priced higher than the put option would be attractive. There are two reasons for this. If managers can sell a call for $8, to use Schwab's example, and buy the put for $6, the fund pockets the $2 difference. In addition, such a move would be viewed as a positive-sentiment indicator because the market would be willing to pay more for an upside move than downside protection.
1 of 3

Check Out Our Best Services for Investors

Action Alerts PLUS

Portfolio Manager Jim Cramer and Director of Research Jack Mohr reveal their investment tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
Quant Ratings

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
Stocks Under $10

David Peltier uncovers low dollar stocks with serious upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
14-Days Free
Only $9.95
14-Days Free
Dividend Stock Advisor

David Peltier identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Updates with exact steps to take - BUY, HOLD, SELL
Trifecta Stocks

Every recommendation goes through 3 layers of intense scrutiny—quantitative, fundamental and technical analysis—to maximize profit potential and minimize risk.

Product Features:
  • Model Portfolio
  • Intra Day Trade alerts
  • Access to Quant Ratings
Real Money

More than 30 investing pros with skin in the game give you actionable insight and investment ideas.

Product Features:
  • Access to Jim Cramer's daily blog
  • Intraday commentary and news
  • Real-time trading forums
Only $49.95
14-Days Free
14-Days Free
AAPL $94.60 0.62%
IOC $27.01 -3.70%
POT $16.21 -3.20%
RMBS $11.95 -0.42%
FB $102.26 -1.70%


Chart of I:DJI
DOW 15,931.79 -273.18 -1.69%
S&P 500 1,855.25 -24.80 -1.32%
NASDAQ 4,289.1810 -73.9630 -1.70%

Free Reports

Top Rated Stocks Top Rated Funds Top Rated ETFs