Collar
A Collar wraps a long stock position with a long put (floor) and a short call (ceiling). Defines both downside and upside in a band.
At a glance
Strategy Snapshot
Market View
Cautiously bullish — willing to cap upside to hedge downside.
Net Cost
Stock + Put premium − Call premium (often near zero-cost).
Legs
Long Stock + Buy OTM Put + Sell OTM Call
Max Profit
(Call strike − Stock entry) + Net credit if any.
Max Loss
(Stock entry − Put strike) − Net credit if any.
Breakeven
Stock entry + Net debit (or − Net credit).
Build
Strategy Construction
Color-coded legs — emerald for long positions, rose for short positions. Strikes shown around reference spot 100.
- BUYLeg 1
1 × EQ @ 100
- BUYLeg 2
1 × 95 PE
Premium 2.00
- SELLLeg 3
1 × 110 CE
Premium 2.00
Visualize
Payoff at Expiry
Conceptual payoff with reference spot = 100. Strikes and premiums shown are illustrative.
Sensitivity
Greeks Exposure
Net portfolio Greek exposure for a typical setup. Bars show directional sensitivity from −1 (short) to +1 (long).
Delta
Directional exposure to underlying price.
+0.40
Long
Gamma
Sensitivity of Delta to price changes.
-0.05
Neutral
Theta
Time decay exposure (per day).
+0.05
Neutral
Vega
Sensitivity to implied volatility shifts.
-0.05
Neutral
Strengths
Advantages
Why traders use it
- Defines both upside and downside.
- Can be structured at near zero cost.
- Reduces volatility of returns.
Trade-offs
Risks & Disadvantages
What can go wrong
- Upside is capped at the call strike.
- Forced exit risk if assigned.
- May underperform in strong rallies.
Avoid
Common Mistakes
Watch out for
- Setting strikes too tight — frequent assignment.
- Ignoring dividend dates around assignment.
- Treating it as set-and-forget — needs rolling.
AI Insight
LiveCollars define a return band on long stock. Choose strike widths that match your risk-reward tolerance — wider call cap when you expect a rally, tighter put floor during macro risk windows.
Generated by NextQuantLabs AI — for educational guidance only.
Questions
Frequently Asked
Can a Collar be free?+
Yes — when the call premium received equals the put premium paid, it becomes a zero-cost collar.
Best time for a Collar?+
When you want to hold the stock long-term but expect short-term turbulence.