Strategies
Collar
A classic hedge for existing stock positions with a defined downside floor and clearly capped upside.
Description
What matters most
A collar combines an existing stock position with a long put and a short call sharing the same expiration. That creates a temporary outcome corridor for the position.
The put creates the downside floor. The short call offsets part of the hedge cost, but it also caps further upside above its strike.
The strategy fits best when you want to keep the stock but temporarily tighten risk after a rally or ahead of an uncertain event.
You can screen for suitable structures in the OWS Tools by filtering for liquidity, put distance, and a reasonable call offset.
Example: XYZ
Collar: floor and ceiling
- 100 shares at 53 USD
- Long Put 52: 2.45 USD
- Short Call 55: 2.30 USD
- Stock 53.00 USD.
- Long put 52 put for 2.45 USD.
- Short call 55 call for 2.30 USD.
- Net debit 0.15 USD per share.
- Max gain 1.85 USD per share or 185 USD per contract.
- Max loss 1.15 USD per share or 115 USD per contract.
Inspired by: Options Education and Fidelity.
P/L Diagram
Schematic at expiration
Losses are limited below the put strike, while upside participation ends above the call strike.
Collar: floor and ceiling
- 100 shares at 53 USD
- Long Put 52: 2.45 USD
- Short Call 55: 2.30 USD
Summary
Key points
- Thesis Hedge an existing position for a defined period.
- Structure Long stock, long put, and short call with one expiration.
- Floor The put defines the minimum exit level.
- Upside The call caps further gains above its strike.
- Assignment The short call can be assigned early.
- Scan Find candidates via the OWS Tools.