"The Most Aggravating Trade Ever"

I saw a caller on CNBC ask about a similar strategy, so here it goes:

Let's say you decide that Las Vegas Sans (LVS) will rise to $47 by September. It is currently trading at $43. The caller asked "should I buy the $47 call?"
The answer is NO! The September 47 Call costs $1.6. So, if you are right, and the stock goes to $47, the stock is on the money, earning no profit. You will lose $1.6.  What is the most aggravating trade ever? Being right - and still losing money!

What about buying the September 43 Call for $3.3? To break even, the stock will have to rise to $46.3. If you are indeed right, and the stock rises to $47, you will only earn $.70. The maximum risk is $3.3.

Here is how you can use a bull collar spread to profit, while limiting downside risk:

1. Buy a $43 call. This will cost $3.3.
2. Sell a $47 call. This will earn you $1.6.

You will start to earn money,
The maximum profit is the difference between the two calls: $4, minus the net cost of the options bought:  $1.7. This will give you the maximum profit of $2.3, with a maximum risk of $1.7 (both options expire worthless).

Let's review our strategies assuming you are correct:

1. Buy a $47 Call. Risk: $1.6. Reward: $0.
2. Buy a $43 Call. Risk: $3.3. Reward: $.70
3. Buy a $43 Call, sell the $47. Risk: $1.7. Reward: $2.3.

Keep in mind that options are represent 100 shares of stock, so a risk of $3.3 is really $330 for buying one option.