The bullish collar involves the simultaneous purchase of an out-of-the-money call option and sale of an out-of-the-money put option. This is an appropriate strategy when a trader is bullish on the stock but expects a moderately lower stock price and wishes to purchase the shares at that lower price.

Key takeaways

1. The collar options strategy is designed to protect gains on a stock you own or if you are moderately bullish on the stock.
2. It involves selling a call on a stock you own and buying a put.
3. The cost of the collar can be offset in part or entirely by the sale of the call.

A collar position is created by holding an underlying stock, buying an out of the money put option, and selling an out of the money call option. Collars may be used when investors want to hedge a long position in the underlying asset from short-term downside risk.

An equity collar is a hedging technique designed to protect a stock from downside price risk, at little to no out-of-pocket cost to the shareholder. Here’s how it works: the shareholder purchases protective put options on the shares he or she owns while simultaneously selling covered call options on those same shares.

Collared Market Buy Orders Most market buy orders are placed as limit orders with a 5% collar for equities, such as stocks and ETFs. This means that if the stock was last traded at 5% above the collar, your order won’t be executed until the stock falls back within the collar.

A collar, commonly known as a hedge wrapper, is an options strategy implemented to protect against large losses, but it also limits large gains. An investor creates a collar position by purchasing an out-of-the-money put option while simultaneously writing an out-of-the-money call option.

A protective collar is a strategy where you own the underlying stock, and subsequently sell a covered call while simultaneously buying a protective put (also known as a married put).

1. To detain or restrain someone, either physically or figuratively. Likened to grabbing someone by the collar. I was trying to get out of the office early, but my boss collared me on my way out. Of police, to arrest or detain someone, such as a suspect of a crime.

Peter Pan Collars are named after the collar worn by Maude Adam’s in her classic 1905 performance as the lead role in J.M.Barrie’s novel. Shaped to fit the neckline, it is a flat collar that lies upon the torso with soft, curved corners.

Generally speaking, a three-way collar involves a producer buying a put option and selling a call option, just as they would do with a traditional collar, in order to establish a floor and ceiling.

A short put is when a trader sells or writes a put option on a security. The idea behind the short put is to profit from an increase in the stock’s price by collecting the premium associated with a sale in a short put. Consequently, a decline in price will incur losses for the option writer.

The costless collar, or zero-cost collar, is established by buying a protective put while writing an out-of-the-money covered call with a strike price at which the premium received is equal to the premium of the protective put purchased.

A costless collar is the combination of two options. In addition, to make the option costless, the options will be structured so that the premium paid for the put option will be offset by the premium received from selling the call option.

A put spread is an option spread strategy that is created when equal number of put options are bought and sold simultaneously. Additionally, unlike the outright purchase of put options which can only be employed by bearish investors, put spreads can be constructed to profit from a bull, bear or neutral market.

Collared Fee: The firm and the client agree upon a fee with a “collar” – typically 10 or 15%. If the total fees exceed or fall below the collar, the firm or the client will either be credited or charged part – normally 50% – of the variance.

Cap and Collar is a term used in connection with interest rates. A Cap is an upper limit, or maximum interest rate that will apply, while a Collar is the minimum interest rate. As such, the interest rate may vary between these two points.

A limit order is an order to buy or sell a stock at a specific price or better. A buy limit order can only be executed at the limit price or lower, and a sell limit order can only be executed at the limit price or higher.