Friday November 20, 06:47 PM
STOCKS NEWS US-Credit Suisse suggests Wynn protective collar
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1312 ET 20Nov2009-Credit Suisse suggests Wynn collar strategy
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Rather than selling this year's out-performing stocks, a so-called collar
strategy is one way for investors to reduce risk while still holding shares.
The strategy involves the simultaneous purchase of a protective put and writing
a covered call option. In casino operator Wynn Resorts Ltd, Credit
Suisse derivatives strategist Sveinn Palsson recommends that investors consider
purchasing a January 2010 $70/$60 collar to protect gains and benefit from a
flat skew. Buying a $60 put and selling a $70 call would pay 90 cents in
premium.
'This position provides full protection against a decline below $60, while
returns are capped at $70 or 9.1 percent upside,' he wrote in a note. Wynn
shares are up 62 percent year-to-date and 342 percent from market lows. The
trade benefits from the relatively flat Wynn skew as out-of-the money puts
trade inexpensive to calls, Palsson said.
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