can't find suitable prices for zero cost collar

Question

I was reading about the zero cost option collar strategy and was puzzled by the idea that one can find an at-the-money put option for the same price as an out-of-the-money call.

I've looked at the option chain for EURUSD and USDJPY on my trading account (IG) and indeed, given the prices, implementing the zero cost collar seems impossible.

I've opened a demo account with Saxo and checked the option chain there  with the same result. What am I missing?

Bob Baerker · Answer

You're not missing anything.  Though there are many web sites promoting this idea (with the intention of trying to get you to sign up for their 'advice'), you're not going to find an out-of-the-money call for the same price as an at-the-money put.
As a general rule, no cost collars have to be approximately equidistant on both sides of current price.
There are some situations that affect this modestly:

There is Forward Skew or Reverse Skew  where  the IV of ATM strikes is  higher or lower than for  OTM strikes

Pending dividends increase put premium respective to call premium

Higher carry cost increases call premium respective to same series put premium

You can shift the R/R and cost/debit of a collar in either direction with collars that are not equidistant.
FWIW, a long collar is synthetically equivalent to a vertical spread so if executing the 3 legs simultaneously, you may save on commissions and B/A spreads by executing the vertical.

TainToTain · Answer

In addition to what Bob Baerker said, you can get a no-cost collar if you leg into it and the underlying moves favorably. Oftentimes just a few points are required to get the put and call to be the same price.

Answered by TainToTain on May 8, 2021

can't find suitable prices for zero cost collar

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