Wave Systems Corp. (fka WAVXQ)

[rwk]

monkies / the

first thought I have is to never let tax consequences stand in the way of a good trading decision. Especially when the capital gains tax in the USA is a very low 10%.

Collars are not a good value for a stock with high volatility such as Wave for two reasons. Primarily, the bid / offer spread you have to cross in buying the put and selling the call to fund the purchase is too large in volatility terms for the trade to make economic sense. A secondary concern is that puts tend to trade at higher implied volatility (and thus proportionate price) than calls so you end up selling cheap and buying dear. Assuming you are still bullish on the company, you are better off selling off enough of your open stock position to your sleeping point, putting that in UST's and letting the balance roll. That way you avoid having to sell a call struck so close to the money that you give up the significant upside exposure you endeavor to keep. Could you imagine having been long NFLX and sold a 10% out of the money call on your whole holdings? You got 10% but missed out on 300...

Collars may eventually become a reasonable value when the stock matures. Look at INTC which has tight bid / offers on even the longest dated Jan 2013 Leaps. But by the time Wave gets there, it won't be the same company or stock as now and the reasons for holding it will be different.