What is a collar option trade?

A collar option trade is less bearish than buying puts outright, but it protects a trader from large losses. Also, selling the upside call helps finance the protective position. A collar option strategy limits risk beyond the protective put’s strike. Even if a stock price goes to zero, the trader’s loss maxes out at the protective put’s strike.

What is a collar strategy?

A collar is an options strategy used by traders to protect themselves against heavy losses. The strategy, also known as a hedge wrapper, involves taking a long position in an underlying stock, buying an out-of-the-money put, and selling an out-of-the-money call.

Should you invest in collar options?

If you expect a stock to be bearish over the short-term, the collar options strategy may be worth considering. With experience, you can learn how to adjust the expiration date and strike price on each side of the collar to maximize your risk and return objectives.

What is a collar in a stock deal?

In a stock deal, a collar can be used to ensure that a potential depreciation of the acquirers stock does not lead to a situation where they must pay much more in diluted shares. Let us now look at an example that involves creating a collar.