Collar
Low-cost stock protection that caps both loss and gain
Definition
A collar is an options strategy that protects a long stock position from large losses while sacrificing upside gains. It combines a protective put option (bought below the current stock price) with a covered call option (sold above the current stock price). The premium received from selling the call helps offset the cost of buying the put, making it a low-cost hedge. Collars limit both gains and losses within a defined range.
Example
You own 100 shares of Apple at $175. You buy a $165 put for $3 and sell a $185 call for $3. Net cost: $0 (zero-cost collar). If Apple falls to $150, your loss is capped at $10/share. If Apple rises to $200, your gain is capped at $10/share. You've traded unlimited upside for defined downside protection.
Related Terms
Frequently Asked Question
What is a collar option strategy?
A collar combines a protective put with a covered call on stock you own. The sold call pays for the bought put, creating a low-cost range of protection. Losses and gains are both capped.
APA Citation
Last updated:
· Source: VixShield Trading Glossary — From SPX Mastery by Russell Clark
⚠️ Not financial advice. This definition is educational content from the SPX Mastery book series by Russell Clark (VixShield). Past performance is not indicative of future results. Trading options involves substantial risk of loss and is not appropriate for all investors. Always paper trade before risking real capital.