Collar
Also known as: Risk Reversal (protective)
You own a stock with a significant unrealized gain and want downside protection for free or low cost, while accepting a cap on further upside — especially ahead of earnings or a macro event
Risk Profile at a Glance
How to Construct the Collar
- 1.Own 100 shares
- 2.Buy 1 put at a lower strike (floor)
- 3.Sell 1 call at a higher strike (cap)
- 4.The call premium typically offsets much of the put cost
Understanding the Collar
The collar combines protective put and covered call into one position. You own stock, buy a put below the current price to set a loss floor, and sell a call above to finance the put. Done properly (zero-cost collar), the call premium fully offsets the put cost, giving you protection for free. The tradeoff: you cap your gain at the call strike.
The collar is the go-to strategy for protecting large stock positions ahead of binary events — earnings, product launches, or macro risk — while avoiding the full cost of a protective put. Portfolio managers at hedge funds use collars extensively to protect concentrated equity positions. In an EdgeOS context, when a bull count approaches exhaustion (counts 7–9) and extension scores are elevated (ext_score > 1.2), a collar locks in profits while keeping the position alive for a possible continued move. The optimal collar has strikes equal to one ATR above and below the current price..
When to Use It — EdgeOS Signal Integration
- ✓Use when no active bull or bear EdgeOS count — the stock is in chop / reset mode
- ✓Extension score near zero — stock is pinned at the ATR mid-level, no directional bias
- ✓Market breadth is neutral (SCTR breadth 45–55%) — range-bound conditions expected
Compare with Similar Strategies
Other Covered & Protected Strategies
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Frequently Asked Questions
What is the Collar options strategy?
The collar combines protective put and covered call into one position. You own stock, buy a put below the current price to set a loss floor, and sell a call above to finance the put.
When should I use the Collar?
You own a stock with a significant unrealized gain and want downside protection for free or low cost, while accepting a cap on further upside — especially ahead of earnings or a macro event
What is the maximum loss on the Collar?
The maximum loss is fully defined at entry: the net debit paid (for debit strategies) or the spread width minus the credit received (for credit spreads). You can never lose more than this amount.
How does the Collar compare to similar strategies?
The Collar is a neutral complex strategy. Compared to the Protective Put (bullish, complex), the Collar has limited max risk and limited max reward. Your choice depends on your directional bias, IV environment, and risk tolerance. The TraderValue strategy comparison tool lets you see the exact payoff differences side by side.