How do collar options work?

To initiate the collar strategy, a call is sold above the stock price and a put is purchased below the stock price. Both options will have the same amount of contracts and expiration dates. Collars may be costless or entered for a credit or debit, depending on the strike price of the short call and long put options.

What is a protective collar option strategy?

The combination of the long put and short call forms a "collar" for the underlying stock that is defined by the strike prices of the put and call options. The "protective" aspect of this strategy arises from the fact that the put position provides downside protection for the stock until the put expires. Protective Collar Options Strategy.

What is a collar strategy?

The collar strategy combines two methods: buying a put to protect against price drops and selling a call to earn some money upfront. Let's break this down: Buying a put (also called a protective or married put): This is like having insurance on your stock.