Equity Collar

An equity collar is simply the coupling of two basic, very commonly used equity option strategies into one with a profit & loss profile that could suit most stock investors at some point in their investing careers. For a position in the underlying stock, it combines the downside price protection of a protective put in return for limited upside profit potential of a covered call. Purchase of the out-of-the-money put can at least in part be financed by the premium received from writing the out-of-the-money call, resulting in a relatively small net debit for establishing the position. Depending on the strike prices chosen and their market prices, an equity collar may from time to time be established at a net credit, with an investor actually taking in money to protect underlying shares already owned. This strategy is particularly appropriate for any investor who?s net worth lies mainly in one large stock position.

Equity Collar Worksheet