CMI Collar Strategy
CMI (Cummins Inc.), in the Industrials sector, (Industrial - Machinery industry), listed on NYSE.
Cummins Inc. designs, manufactures, distributes, and services diesel and natural gas engines, electric and hybrid powertrains, and related components worldwide. It operates through five segments: Engine, Distribution, Components, Power Systems, and New Power. The company offers diesel and natural gas-powered engines under the Cummins and other customer brands for the heavy and medium-duty truck, bus, recreational vehicle, light-duty automotive, construction, mining, marine, rail, oil and gas, defense, and agricultural markets; and offers new parts and services, as well as remanufactured parts and engines. It also provides power generation systems, high-horsepower engines, heavy and medium duty engines, application engineering services, custom-designed assemblies, retail and wholesale aftermarket parts, and in-shop and field-based repair services. In addition, the company offers emission solutions; turbochargers; air and fuel filters, fuel water separators, lube and hydraulic filters, coolants, fuel additives, and other filtration systems; and electronic control modules, sensors, and supporting software, as well as new, replacement, and remanufactured fuel systems. Further, it provides automated transmissions; standby and prime power generators, controls, paralleling systems, and transfer switches, as well as A/C generator/alternator products under the Stamford and AVK brands; and electrified power systems with components and subsystems, including battery, fuel cell, and hydrogen production technologies.
CMI (Cummins Inc.) trades in the Industrials sector, specifically Industrial - Machinery, with a market capitalization of approximately $97.91B, a trailing P/E of 36.71, a beta of 1.27 versus the broader market, a 52-week range of 307.9-718.08, average daily share volume of 861K, a public-listing history dating back to 1947, approximately 70K full-time employees. These structural characteristics shape how CMI stock options price implied volatility around earnings windows, capital events, and macro-driven sector rotations.
A beta of 1.27 places CMI roughly in line with broader market moves, so the strategy payoff and realized volatility track the index-equivalent baseline. The trailing P/E of 36.71 is on the rich side, which tends to correlate with higher earnings-window IV expansion as the market debates whether forward growth supports the multiple. CMI pays a dividend, which adjusts put-call parity and shifts the ex-dividend pricing across the listed chain.
What is a collar on CMI?
A collar pairs long stock with a protective out-of-the-money put financed by a short out-of-the-money call, capping both tails of the position around the current spot.
Current CMI snapshot
As of May 15, 2026, spot at $696.29, ATM IV 38.10%, IV rank 53.10%, expected move 10.92%. The collar on CMI below is built from the same end-of-day chain, with strikes snapped to listed contracts and premiums pulled from the bid/ask midpoint at a 34-day expiry.
Why this collar structure on CMI specifically: IV regime affects collar pricing on both sides; mid-range CMI IV at 38.10% typically pushes the short call premium to roughly offset the long put cost, with a market-implied 1-standard-deviation move of approximately 10.92% (roughly $76.06 on the underlying). The 34-day window matched to the front-month expiry keeps theta exposure bounded while still capturing the post-snapshot move; longer-dated CMI expiries trade a higher absolute premium for lower per-day decay. Position sizing on CMI should anchor to the underlying notional of $696.29 per share and to the trader's directional view on CMI stock.
CMI collar setup
The CMI collar below is built from the end-of-day chain, with each option leg priced at the bid/ask midpoint of its listed strike. With CMI near $696.29, the first option leg uses a $730.00 strike; additional legs (when the strategy has them) anchor to spot-relative offsets. Premiums come from the bid/ask midpoint on the listed CMI chain at a 34-day expiry; the cross-strike IV skew is reflected directly in the per-leg values rather than approximated. Quantity sizing assumes one contract per option leg (or 100 CMI shares for the stock leg in covered calls and collars).
| Action | Type | Strike / Basis | Premium (est) |
|---|---|---|---|
| Buy 100 shares | Stock | $696.29 | long |
| Sell 1 | Call | $730.00 | $17.90 |
| Buy 1 | Put | $660.00 | $16.95 |
CMI collar risk and reward
- Net Premium / Debit
- -$69,534.00
- Max Profit (per contract)
- $3,466.00
- Max Loss (per contract)
- -$3,534.00
- Breakeven(s)
- $695.34
- Risk / Reward Ratio
- 0.981
Max profit roughly equals short-call strike minus cost basis plus net premium; max loss roughly equals cost basis minus long-put strike minus net premium. Breakeven shifts by the net premium.
CMI collar payoff curve
Modeled P&L at expiration across a range of underlying prices for the collar on CMI. Each row is one sampled price point from the computed payoff curve; the full curve uses 200 price points internally before being summarized into 10 rows here.
| Underlying Price | % From Spot | P&L at Expiration |
|---|---|---|
| $0.01 | -100.0% | -$3,534.00 |
| $153.96 | -77.9% | -$3,534.00 |
| $307.91 | -55.8% | -$3,534.00 |
| $461.87 | -33.7% | -$3,534.00 |
| $615.82 | -11.6% | -$3,534.00 |
| $769.77 | +10.6% | +$3,466.00 |
| $923.72 | +32.7% | +$3,466.00 |
| $1,077.68 | +54.8% | +$3,466.00 |
| $1,231.63 | +76.9% | +$3,466.00 |
| $1,385.58 | +99.0% | +$3,466.00 |
When traders use collar on CMI
Collars on CMI hedge an existing long CMI stock position; the long put sets a floor while the short call finances it, often run as a near-zero-cost hedge during expected volatility windows.
CMI thesis for this collar
The market-implied 1-standard-deviation range for CMI extends from approximately $620.23 on the downside to $772.35 on the upside. A CMI collar hedges an existing long CMI position with a protective put while financing the put cost via a short call; when the premiums roughly offset, the collar acts as a near-zero-cost insurance band around the current spot. Current CMI IV rank near 53.10% is mid-range against its 1-year distribution, so the IV signal is neutral; the collar thesis on CMI should anchor more to the directional view and the expected-move geometry. As a Industrials name, CMI options can move on sector-level news flow (peer earnings, regulatory updates, industry-specific macro data) in addition to CMI-specific events.
CMI collar positions are structurally neutral (protective); the modeled P&L assumes European-style exercise at expiration and ignores early assignment, transaction costs, dividends paid before expiry on the stock leg (when present), and the bid-ask spread on the listed chain. CMI positions also carry Industrials sector concentration risk; news flow inside the sector (peer earnings, regulatory shifts, supply-chain headlines) can move CMI alongside the broader basket even when CMI-specific fundamentals are unchanged. Always rebuild the position from current CMI chain quotes before placing a trade.
Frequently asked questions
- What is a collar on CMI?
- A collar on CMI is the collar strategy applied to CMI (stock). The strategy is structurally neutral (protective): A collar pairs long stock with a protective out-of-the-money put financed by a short out-of-the-money call, capping both tails of the position around the current spot. With CMI stock trading near $696.29, the strikes shown on this page are snapped to the nearest listed CMI chain strike and the premiums come straight from the end-of-day bid/ask midpoint.
- How are CMI collar max profit and max loss calculated?
- Max profit roughly equals short-call strike minus cost basis plus net premium; max loss roughly equals cost basis minus long-put strike minus net premium. Breakeven shifts by the net premium. For the CMI collar priced from the end-of-day chain at a 30-day expiry (ATM IV 38.10%), the computed maximum profit is $3,466.00 per contract and the computed maximum loss is -$3,534.00 per contract. Live intraday quotes will differ as the chain moves through the trading session.
- What is the breakeven for a CMI collar?
- The breakeven for the CMI collar priced on this page is roughly $695.34 at expiration, derived from end-of-day chain premiums. Breakeven is the underlying price at which the strategy's P&L crosses zero ignoring transaction costs and assignment risk. The current CMI market-implied 1-standard-deviation expected move is approximately 10.92%; if the move sits well outside the breakeven distance, the structure's risk-reward becomes correspondingly tighter.
- When should you consider a collar on CMI?
- Collars on CMI hedge an existing long CMI stock position; the long put sets a floor while the short call finances it, often run as a near-zero-cost hedge during expected volatility windows.
- How does current CMI implied volatility affect this collar?
- CMI ATM IV is at 38.10% with IV rank near 53.10%, which is mid-range against its 1-year history. Strategy selection depends more on directional thesis and expected move than on a strong IV signal.