Long Collar 

Overview

Long collar is an options strategy where you hold a long position in the underlying asset, buy a put, and sell a call. This strategy helps limit losses if the asset’s price falls, while also capping potential gains if it rises.

Features

Components

Profit source

The appreciation of holding the underlying stock, while hedging the impact of the underlying stock's decline through "buying a Put." The premium income obtained from "selling a Call" can offset part of the cost of buying the Put, thereby achieving the purpose of hedging risks at a lower cost.
 

Case study

Let's imagine a made-up company called TECH.

TECH’s current stock price is $50. You are bullish on the stock in the long term but concerned about a potential short-term decline. You decide to use a Long Collar strategy.

You buy or already own 100 shares of TECH stock. You then buy one Put option with a strike price of $48, paying a premium of $4 per share, and simultaneously sell one Call option with a strike price of $60, receiving a premium of $2 per share.

Short Collar

Overview

Short collar is an options strategy where you short the underlying asset, buy a call, and sell a put. This strategy helps limit losses if the asset’s price rises, while also capping potential gains if it falls.

Features

Components

Profit source

The profit comes from the appreciation of holding a short position, while hedging the impact of the short position's rise through “buying a Call.” The premium income obtained from “selling a Put” can offset part of the cost of buying the Call, thereby achieving the purpose of hedging risks at a lower cost.

Case study

Let's imagine a made-up company called TECH.

Right now, TECH's stock price is $50 per share. You are concerned that the stock price might rise in the short term, so you decide to use a Short Collar strategy.

You short or already hold a short position in 100 shares of TECH stock. You then buy one Call option with a strike price of $60, paying a premium of $4 per share, and sell one Put option with a strike price of $48, receiving a premium of $2 per share.