Strategy Overview
Low RiskIntermediateNeutral
A collar combines a protective put with a covered call. You limit both downside and upside, often for zero or low cost as the call premium offsets the put cost.
Max Profit
Call strike - stock price + net credit (or - net debit)
Max Loss
Stock price - put strike + net debit (or - net credit)
Breakeven
Stock purchase price ± net premium
Probability
Protection strategy
hist. est.
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Example Setup Calculator
$
Credit Received
$50
Max Profit
$550
Max Loss
$450
Breakeven
$99.50
Strategy Components
BUY OTM PUT
Buy OTM put (protection)
SELL OTM CALL
Sell OTM call (funds the put)
When to Use
- You own shares and want cheap protection
- You are willing to cap upside for safety
- You want to lock in gains
- Uncertainty but unwilling to sell shares
Best Market Conditions
- Elevated uncertainty
- Large unrealized gains
- Want protection without cost
Best Practices
- Can create zero-cost collar
- Choose strikes based on acceptable range
- Consider tax implications vs. selling
- Roll as needed to maintain protection
Ready to Trade?
Review Collar and practice it in paper trading with the school workflow.
Paper Trading