Stock + Options

Collar

A protective put paid for by a covered call.

Expiration payoff profile for Collar
Payoff at expiration

A collar is executed against a stock position with the goal of limiting the potential downside without spending much in option premium.

A collar begins by buying a protective put option and then sells a covered call in order to pay for the protective put. The entire collar is usually done for little or no net premium, while the collar may actually generate a small amount of net premium.

Since a collar is selling a covered call, ownership of the underlying stock is necessary.

Cheat sheet

Collar Cheat SheetPDF

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