Carvana (CVNA) stock surged as it was added to the S&P 500 Index, boasting a remarkable 3-year return of 7,800%. With an $87 billion market cap and institutions owning over 56% of shares, the stock is now more vulnerable to market fluctuations. A collar strategy may be a wise move to protect gains.

The addition to the S&P 500 provides Carvana with a natural bid from passive flow, but its impact on the market is limited due to its size. Daily and weekly charts show strength, but the news-driven factor remains a concern. Volatile stocks like Carvana are ideal candidates for collar strategies to protect gains while allowing for future upside potential.

Implementing a collar strategy involves tradeoffs, such as the high implied volatility of Carvana stock compared to the S&P 500. Despite the lower relative volatility of Carvana, option pricing may be impacted, affecting the up/down ratio. Collars are imperfect but can help manage risk in high-flying stocks like Carvana. Founder of Sungarden Investment Publishing, Rob Isbitts, shares insights on collar strategies to navigate market risks effectively.

Read more at Barchart.: After a Red-Hot Rally on S&P 500 Inclusion, Carvana Stock Needs a ‘Cool’ Option Collar. How to Trade CVNA Here.