Sign up with Google
Collar Strategy
From this section onwards, we will start with different volatility and range-bound strategies. First, let us begin with the understanding of a ‘Collar Strategy.’
A collar strategy is a combination of a covered call and a protective put. It can be devised by
- Buying the stock ( either cash or futures)
- Selling out of the money call
- Buying out of the money Put
This strategy limits the return of the stock or the portfolio to a specified range and can hedge a position against the volatility of the underlying asset.
If the stock rises, this strategy performs like a covered call. If the stock declines, this strategy limits the loss at the put strike price
- A collar strategy limits both gains and losses.
- The payoff from the strategy is similar to a Bull Call Spread
- Collars may be used when investors want to hedge a long position in the underlying asset from short-term downside risk.
Option Chain:
We can see that if the stock rises, this strategy performs like a covered call. If the stock declines, this strategy limits the loss at the put strike price.
Unlock success in options trading with our 'Collar Strategy' masterclass. Elevate your skills and profits today!
