Trading away your upside to put a floor under a holding you don't want to sell.
1 min read
A collar is three positions at once: 100 shares you own, a protective put below the price, and a covered call above it. The call premium pays for the put. The result is a holding that can't fall below one price or rise above another.
Collaring a position you can't sell
You hold 100 shares bought at $80, now worth $100.
Buy the $95 put, 90 days out: −$3.00
Sell the $110 call, 90 days out: +$2.80
Net cost: $0.20 — $20 for three months of protection.
Floor: $95. Ceiling: $110. Your $20/share gain is protected down to $15.
You are selling your upside, and it's the good outcome you're selling
A collar caps the stock at $110. If it's taken over at $160 next month, you sell at $110. The trade is only sensible when you'd genuinely rather have the floor than the tail — and the cases where you most want protection tend to be the cases where a violent recovery is also possible. A collar is insurance, and like insurance, the expected value is negative and you buy it anyway for the shape of the outcome.
A covered call alone gives you income and no protection — the premium cushions a percent or two and nothing more. A collar converts that income into an actual floor. You give up the premium (and sometimes pay a little) to change what happens in a real decline. Different jobs, and it's worth being clear which one you're doing.
Not tracked in Wheel Folio yet
A collar is a stock position plus two options that have to be understood together. The app currently models covered calls against shares, but not a simultaneous long put leg.
Educational only
Nothing here is investment, financial, or tax advice. Options carry risk, including losing more than the premium collected, and the examples use round numbers to show the mechanics rather than to suggest a trade. Read risk and position sizing before putting real money behind any of it.