Collar

Cheap protection on long stock via paired call and put. Outlook: neutral. Direction: varies. Risk: defined.

A collar pairs long stock with a protective put below current price and a short call above. The short call premium finances some or all of the long put premium, so collars are often structured as zero-cost (or small net credit) hedges.

The structure caps both upside and downside. Investors use collars to protect large concentrated positions (employee stock, inheritance), or around known event risk where they want exposure but not unlimited downside.

Break-Even

Break-even = share cost basis − net credit (or + net debit). Within the collar range, P/L scales linearly with spot.

Max Profit

(Short call strike − share cost basis + net credit) × 100 × contracts at or above the short call strike.

Max Loss

(Share cost basis − long put strike − net credit) × 100 × contracts at or below the long put strike.

When to Use

• Protecting a concentrated long position (tax, inheritance, employee stock) from downside.
• Known event risk where you want defined-risk exposure but do not want to sell the shares.
• IV is elevated enough that the short-call premium meaningfully finances the long put.
• You are willing to cap upside in exchange for cheap downside protection.

Common Pitfalls

• Capped upside: a runaway rally gets delivered back to you at the short strike.
• Early assignment on the short call near ex-dividend dates can cut off dividend capture.
• Managing a collar around a core position adds complexity at every roll.
• Tax implications of the stock/option interaction vary by jurisdiction.

Try This on a Live Ticker

The strategy builder applies any structure to a live ticker with real Greeks and expiration P/L: SPY · QQQ · AAPL · NVDA · TSLA.