I’m working through the EOC question in study session 28 and am stuck on #5. In computing the profit/loss of strategies, I’ve only been looking at the p&l associated with the options. However in question #5, the answer has us also including the move of the underlying stock in the total p&l. How would you know to assume the investor holds the underlying stock? Is this a general assumption when computing p&l on a collar trade?
collar = own stock, buy put + sell call.
own stock + buy put = protective put. for this you the owner are required to shell out a premium for the put. You offset that by selling a call at the same exercise price.
As cpk123 highlighted that collar position itself = stock, long put + short call.
Collar is different from other option strategies(Bull spread, Butterfly etc) where there is no underlying stock position.