Collar Strategy

Category: finance

An options strategy that protects a portfolio by selling a call option (to cap upside) and buying a put option (to cap downside).

A collar is the ultimate "safety net." By limiting the potential upside profit, the investor generates income that pays for the put option’s insurance premium. It ensures the portfolio value cannot drop below a specific floor, effectively trading unlimited upside for guaranteed downside protection.

Common Examples

• We deployed a protective collar around our tech position to lock in gains and insure the portfolio against a looming earnings-miss event.
• A collar strategy is preferred by long-term holders who want to remain invested but cannot stomach the risk of a sharp market correction.