Definition
A collar involves owning stock, selling an OTM call, and buying an OTM put. The call premium helps offset the put cost, sometimes creating a zero-cost collar. It limits both downside risk and upside potential, creating a defined trading range for the position.
Formula
Max Profit = Call Strike - Stock Cost + Net Premium | Max Loss = Stock Cost - Put Strike + Net Premium
Example
Own stock at $100, sell $110 call for $3, buy $90 put for $2. Upside capped at $111, downside limited to $89.
FAQ
What is Collar Strategy?
A protective strategy combining a covered call with a protective put.
How do you calculate Collar Strategy?
A common formula for Collar Strategy is: Max Profit = Call Strike - Stock Cost + Net Premium | Max Loss = Stock Cost - Put Strike + Net Premium
Why is Collar Strategy important?
Collar Strategy helps investors evaluate options and make more informed decisions.