Type of Strategy




implied volatility



100 shares of XYZ at $48.  Purchase a 45-DTE $45 Put for $1 & sell a 45-DTE $50 Call for $2.


max loss = $2     ($45-$48+$1)     

max profit = $3   ($50-$48+$1)  

Breakeven = $47   (underlying – credit recvd)


Sell a call to finance the purchase of a put while holding the underlying shares.


For every 100 shares of the underlying, sell one OTM call and buy one OTM put with the same expiration.

Soi perspective

Employing a collar strategy while holding the underlying will insulate the holder from significant price moves in either direction.  In times of uncertainty or short-term concern, a collar can protect the holder from volatility if the long-term prospects of the underlying remain positive.

One common variation of the collar strategy is the Costless Collar.  Generally used with LEAP options, an ATM Put is purchased in conjunction with an OTM Call such that the net premium of the two options in zero.

Capability to employ costless collars, along with acceptable strikes for the option legs will be dependent upon volatility and option skew.

In a margin account, it is possible to enter a collar transaction without holding the underlying position.  However, the short call leg of this trade creates unlimited exposure to the upside.  Hence, SOI strongly recommends against this or any other undefined short call exposure, whether trading or investing.

On occasion, option traders may establish collar trades on their underlying positions.  However, collar strategies offer much greater value and utility to option investors.


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