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Direction |
Neutral to moderately Bullish |
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Strategy Type |
Capital Gain and Income |
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Legs |
Long Stock |
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Long Put |
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Short Call |
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Max Reward |
Capped: (Call Strike - Put Strike - Risk of Trade) |
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Max Risk |
(Stock Price Put Premium) - (Put Strike - Call Premium) |
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Time Horizon |
Usually long dated, however time can be unknown as it depends on the stock movements and whether sold calls are exercised or not. |
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Risk Profile |
The lowest risk options/equities strategy. |
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Payoff Diagram
Description
The Collar strategy is a low risk options and equities strategy used to gain exposure to the market, whilst selling calls to offset the cost of protecting a position. The result is a limited risk, limited return, low risk, strategy. Income can be generated by selling calls repetitively each month whilst holding the long position.
Steps Involved
Purchase stock
Purchase protective put options
Sell Calls over the top