Anavex Life Sciences Corp (AVXL)

[kevindenver]

That's a Covered Put with a collar. Short stock, short put and the addition of the a long put creates a the collar.

An example would be shorting the stock at...11 let's say. Then selling $10 puts for week after week...collecting the premium of 30-70 cents per week. While they do this they have bought APR $20 calls that are 20 cents. There is pain between $11 and $20 if AVXL spikes but then they are fully covered against additional pain by their calls. In a case like this they would probably have assymetric positions where they have more calls than shorts (or staggered options across strikes and time.)

When done on scale and by a market maker or dark pool participant with internal pricing information and guaranteed order flow the math and risk can make it "sane" to hold a large open short position as it's been creating income and hedged.