Stock Collars MWA
Nov. 15, 2016 Article

Utilizing Stock Collars to Help Protect Against Risk of P&G Stock Price Dropping Rapidly

Share

Use this guide to help you understand stock collars, which is one way to protect against the risk of P&G stock price dropping rapidly, either just before exercising stock options or just after retirement and before you can diversify.

Terms Used In This Guide

Call: A call is the right for someone else to call your stock away from you. For example, someone gives you $4 per share for the right to call your stock (buy it from you) at $62 per share. The current trading price is $56 per share. That person has the right to call your stock anytime in the next four months. While you hold the stock, you receive the dividends. If the price doesn’t get to $62, that person does not buy your stock and you keep the $4 per share.

Put: A put is the right to force someone to buy your stock at a prescribed price for a prescribed time period. You have the right to put the stock to them. For example, you pay $4 per share for the right to force someone to buy your stock for $50 per share anytime within the next four months. You keep the dividends. If the stock does not drop, that person keeps the $4. You do not force that person to buy the stock, and you are free to sell on the open market for the current trading price.

Example Of A Collar

Assume you have 1,000 shares of P&G stocktrading at $56 per share. You must sell these shares in the near future and you are afraid the market might drop. You can protect the stock by selling a call at $62. Thus, the most you will get is $62. You take the $4 call money and buy a put at $50 which costs $4. Thus, you have not used any out of pocket money. However, you have put a collar around the stock. You will not get any more than $62 per share, but more importantly, not less than $50 per share.

When To Consider Using A Collar

Consider using a collar on any block of stock that must be sold in the near term either as part of a diversification plan, for living expenses, or to limit risk on stock options coming due.

 

Mariner Wealth Advisors is not affiliated with Procter & Gamble. Any reference to them should not be construed as an endorsement by either party.

This document is for informational use only. Nothing in this publication is intended to constitute legal, tax, or investment advice. There is no guarantee that any claims made will come to pass. The information contained herein has been obtained from sources believed to be reliable, but Mariner Wealth Advisors does not warrant the accuracy of the information. Consult a financial, tax or legal professional for specific information related to your own situation.

Mariner Wealth Advisors (“MWA”) is an SEC registered investment adviser with its principal place of business in the State of Kansas. Registration of an investment adviser does not imply a certain level of skill or training. MWA and its representatives are in compliance with the current registration and notice filing requirements imposed upon registered investment advisers by those states in which MWA maintains clients. MWA may only transact business in those states in which it is notice filed, or qualifies for an exemption or exclusion from notice filing requirements. Any subsequent, direct communication by MWA with a prospective client shall be conducted by a representative that is either registered or qualifies for an exemption or exclusion from registration in the state where the prospective client resides. For additional information about MWA, including fees and services, please contact MWA or refer to the Investment Adviser Public Disclosure website. Please read the disclosure statement carefully before you invest or send money.

© Mariner Wealth Advisors. All Rights Reserved.