Collar

1. 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.

2. 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.