The Collar, Explained

What it is

A collar has three parts on a stock you own:

• Your 100 shares.
• A protective put below the price for a downside floor (see protective puts).
• A covered call above the price for income to fund the put (see covered calls).

The call premium pays for the put, so a collar can often be set up for little or no net cost — sometimes even a small credit.

The numbers

You own 100 shares at $50; stock now $52. You buy the $48 put for $1.00 and sell the $56 call for $1.00 — net cost roughly zero.

• Downside floor: $48 — you can't lose below it, however far the stock drops.
• Upside cap: $56 — above it your shares get called away.
• Net cost: about $0 — the call paid for the put.

You've boxed the position into a known range until expiry.

When to use it

When you hold a stock (often with gains) and want cheap protection through an uncertain period — an earnings report, a market you're nervous about, or locking in a winner — and you'll give up the upside to get that protection nearly free.

The trade-off

You cap your gains. If the stock rockets past your call strike, you miss it. A collar is about defence, not maximising returns.

How TickerRisk helps

Use the calendar to spot the events worth collaring around, and the options page to see the IV and strikes that make the put and call line up for near-zero cost.