Options Strategy - Protective Collar

Introduction

A protective collar is a strategy offers a way to protect against losses and at the same time allowing you to have a limited profit when the market goes up.

One of the interesting feature of this strategy is that sometimes it can be combined at merely no cost because the premium received from the short call can offset the cost of the long put. The name collar indicates that you are limiting your risk exposure to a defined range within the strike prices.

Pay Off Chart

Maximum Gain

Stock Price - Call Strike Price

Maximum Loss

Stock Price - Put Strike Price

Composition

• Purchases the underlying stock
• Sell a covered call
• Buying a protective put