Strategy lesson · Advanced · bullish
Collar Explained
Protective collar: long stock + long put + short call. Floors downside while financing the put by capping upside.
How a Collar is built
Own shares, buy put (floor), sell call (ceiling). Often near zero net premium.
This strategy typically includes a stock leg (buy 100 shares in the default template).
- Leg 1: buy put · strike template 95 · premium ~2 · 1 contract(s)
- Leg 2: sell call · strike template 110 · premium ~2 · 1 contract(s)
Risk & reward snapshot
| Market bias | bullish |
|---|---|
| Max profit | Capped: roughly call strike − stock basis ± net options premium. |
| Max loss | Floored: roughly stock basis − put strike ± net premium. |
| Breakeven | Depends on stock basis and net options debit/credit. |
Figures are conceptual for the classic structure. Your actual premiums, strikes, and fees change the numbers — confirm on the calculator.
When traders use it
- You hold stock and want downside protection without paying full put cost.
- Willing to cap upside (e.g. into an event or concentrated position).
Key risks
- Miss large upside if called away.
- Still lose if stock drops to the put (protection is not zero loss unless put is at basis).
Practical tips
- Zero-cost collars require balancing put debit vs call credit carefully.
Practice on the calculator
- Open the Collar calculator.
- Load a symbol and option chain; fill realistic mid premiums.
- Review max profit, max loss, breakevens, and the date × price heatmap.
- Change strikes and DTE to see how risk shape shifts.
FAQ
What is a Collar?
Protective collar: long stock + long put + short call. Floors downside while financing the put by capping upside.
What is the max loss on a Collar?
Floored: roughly stock basis − put strike ± net premium.
When should I use a Collar?
You hold stock and want downside protection without paying full put cost. Willing to cap upside (e.g. into an event or concentrated position).