Uncapped collar overlays and earnings-week short calendars

Two constructions around expensive premium

The archive describes a share overlay that can finance downside cover, and a separate event-week reverse calendar that keeps long near-dated gamma.

Editorial reading: these are two answers to one regime question. Should expensive option premium finance a protective sleeve around stock, or should it be structured as long near-dated gamma against a cheaper further-out short?

Married-put overlay

A one-for-one long put against owned shares is presented as a married-put overlay. The same sleeve is also labeled a long synthetic call. It keeps further share upside while adding downside cover.

Repeated purchase of protective puts is described as eroding, and potentially eliminating, net share gains if the stock rises or stays flat and the puts expire unused.

Collar and an uncapped residual

Long shares plus a long put and a short call are described as a collar. The collar risk profile matches a bull vertical spread.

The illustrated large-cap comparison uses 200 shares bought just above 300, two November 290 puts, and two slightly out-of-the-money November 310 short calls in both overlays.

Buying two November 320 calls is presented as a collar variation. Once the 310/320 bear-call-vertical reaches its maximum loss above the top strike, the structure leaves a married-put residual. Further upside is then no longer capped.

Earnings-week short calendar

When premiums look elevated ahead of a report but a large share move is expected, near-the-money or adjacent-strike verticals are described as removing most of the vega that an outright long call or put would carry.

A short-calendar, also called a reverse calendar, is described as buying the earnings-cycle contract and selling a nearby further-out contract. The structure produces positive gamma and short vega when front-month premium is elevated and a large move is expected.

When the front contract expires close to the report, nearby implied volatility is described as standing above the further-out month. That implied-volatility-term-gap is illustrated with a large-cap earnings cycle in October 2010, cited as a recurring example.

Risk graph, skew, and near-expiry theta

Checking a short-calendar risk graph against assumed post-event-skew-shift is described as the same mechanical process used for a long calendar, but with opposite objectives.

For reports that involve soon-to-expire options, one or two days of theta are described as able to outweigh vega-related losses on the long front-month contract.