Grow Up! (Part 1)

My last series of posts was based on an e-mail correspondence I had a few years ago. Today I continue that “blast from the past” with a quick hitter: a forum post from March 2013.

This post was made in the forum belonging to an option education community. She wrote:

> The down side of collars
>
> I went to your summit lecture on collars and came away thinking
> this was a way to protect a position. No where did you explain
> about what you are risking by putting on a collar. So I put on
> a collar on ARMH since it’s PE is so high and there was some
> uncertainty about just how much the Arm chips would contribute
> to the Galaxy 4 announced Thursday.
>
> The result was I’ve now lost almost $13,000. You never said
> that the cost of the collar if the stock goes up is so high!
> Not only is there the cost of the options but all my gains
> from the stock going up are offset by the decline in option
> value. The collar is a dangerous trade unless you are really
> convinced that the stock is going down. Just my opinion but I
> really think you should have told us about the substantial
> down side of using options.
>
> Signed,
> JD

I will continue with my response in the next post.