Collar Strategy for Fund Managers
Loosening Your Collar: Alternative Implementations of QQQ Collars
published by Ed Szado and Thomas Schneeweis (Journal of Trading, Spring 2010, Vol.5, No. 2, pp. 35-56) from the University of Massachusetts) with appendix showing results through 9-30-2010.
An 11 1/2 year study by the Center for International Securities and Derivatives Markets at the University of Massachusetts found that a long protective collar strategy using 6-month put purchases and consecutive 1-month call writes earned far superior returns compared to a simple buy-and-hold strategy while reducing risk by almost 65%. The research evaluated passive and active implementations of long protective collar strategies on the Powershares QQQ Exchange-Traded Fund (Ticker: QQQQ). Over the 138-month study period, the passive collar returned almost 185% (9.6% annually) while QQQ experienced a "lost decade", losing 3% over the same time period. The active collar outperformed both strategies and returned more than 290% (12.5% annually).
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