Elearnmarkets - Financial Market Learning
  • Courses
  • Webinars
  • Stories
  • Language
    • English
    • Hindi
    • Bengali
No Result
View All Result
Get Free Course
  • Basic Finance
  • Derivatives
    • Futures
    • Options
  • Financial Planning
  • Fundamental Analysis
  • Technical Analysis
  • Mutual Funds
  • Marketshala
  • Miscellaneous
Elearnmarkets - Learn Stock Market, trading, investing for Free
  • Courses
  • Webinars
  • Stories
  • Language
    • English
    • Hindi
    • Bengali
No Result
View All Result
Get Free Course
Elearnmarkets - Learn Stock Market, trading, investing for Free
No Result
View All Result
Home Derivatives Options
Collar Option Strategy

How to Use Collar Option Strategy?

Vivek Bajaj by Vivek Bajaj
May 2, 2025
in Options
Reading Time: 5 mins read
0
125
VIEWS
Share on FacebookShare on XShare on WhatsApp

When the stock market is unpredictable, many investors want a way to protect their money but still have a chance to make profits. 

The Collar Option Strategy is a smart way to do that. 

In this blog, we will explore what the collar strategy is, how it works, when to use it, and discuss some examples.

What is a Collar Option Strategy?

A Collar Option Strategy is when you own a stock and you do two things:

  • Buy a put option: This protects you if the stock price falls.
  • Sell a call option: This gives someone else the right to buy your stock at a specified price if the stock’s price rises.

This way, you create a “collar” that limits how much you can lose and how much you can gain.

Why is the Collar Option Strategy Important?

The collar strategy is helpful because:

Helps Protect Your Profits

The collar strategy is excellent when your stock has gone up and you don’t want to lose those gains. You buy a put option that lets you sell the stock at a certain price if it falls. This way, you protect yourself from significant losses without having to sell your stock right away.

Low or No Cost Protection

Buying protection usually costs money. But in a collar strategy, you also sell a call option, which generates income. This money helps pay for the put option. Sometimes, you can protect your stock at little to no cost.

Limits Big Profits, but Gives Peace of Mind

By selling a call, you agree to sell your stock if the price rises too high. This means you might miss out on some big profits. But in return, you get more safety and less stress about sudden price changes. It’s a fair trade for many investors.

Good for Uncertain Markets

When the market is moving up and down a lot, the collar strategy acts like a seatbelt for your investment. It keeps your losses small and helps you stay calm during market fluctuations.

How Does a Collar Option Strategy Work?

Here’s how this strategy works –

  1. Own the stock.
  2. Buy a put option: This lets you sell the stock at a set lower price.
  3. Sell a call option: This lets someone else buy your stock at a set higher price.

The put protects you if the price falls, and the call gives you money to help pay for the put.

When to Use a Collar Option Strategy?

Use a collar when:

  • You already own a stock that has increased significantly.
  • You are worried the stock price might fall.
  • You are okay with giving up big profits to avoid significant losses.
  • You want a cheap way to protect yourself.

It’s best when you’re unsure whether the market will go up or down.

Example of Collar Option Strategy

Let’s say you own 100 shares of a company called XYZ, and the stock price is ₹1,000.

  1. You buy a put option with a strike price of ₹950. It costs you ₹20.
  2. You sell a call option with a strike price of ₹1,050. You earn ₹20.

Net Cost: ₹20 (buy put) – ₹20 (sell call) = ₹0

What happens next:

  • If the stock falls to ₹800, your put lets you sell it for ₹950.
  • If the stock rises to ₹1100, you must sell at ₹1,050.
  • If the stock stays around ₹1,000, nothing happens, and you keep your stock.

Conclusion

The Collar Option Strategy is a smart and low-cost way to protect your stock investment. It helps you avoid significant losses while still giving you a chance to earn some profit. It’s a good idea when you want to stay invested but are worried about short-term market swings. Use the collar option strategy to safeguard your investments and earn steady returns — learn it all in our Option Trading Course.

You can visit StockEdge to explore detailed market insights.

Tags: Collar Option StrategyOption Trading
ShareTweetSend
Get Kotak Offer Get Kotak Offer Get Kotak Offer
Previous Post

How is Standard Deviation Used in Mutual Fund

Next Post

Forex vs Stocks: Which Market Should You Trade First

Vivek Bajaj

Vivek Bajaj

Mr. Vivek Bajaj has over 18 years of trading experience in equities, options, currencies, and commodity markets. He is the co-founder of Stockedge and Elearnmarkets and is passionate about data, analytics, and technology. He serves on various exchange committees and has played a significant role in the evolution of India's derivative market. He has been a speaker at various colleges and higher institutions, including IIT and IIMs.

Related Posts

Scalping Trading Strategies
Options

Top 5 Scalping Trading Strategies For Higher Return

May 5, 2025
4.3k
best indicators for options trading
Derivatives

5 Best Indicators for Options Trading

October 15, 2024
1.3k
Options selling
Options

How Options Selling Can Pave Your Way to Profitable Trading

February 15, 2025
9k
Options Selling Strategies
Derivatives

Best Options Selling Strategies for Optimising Your Investment

February 15, 2025
4.4k

Leave a Reply Cancel reply

Your email address will not be published. Required fields are marked *

Disclaimer

Elearnmarkets (Kredent InfoEdge Pvt. Ltd.) is a SEBI-registered Research Analyst (RA) entity (SEBI Registration No.: INH300007493). The information provided in this article is for educational and informational purposes only and should not be considered as an offer to buy or sell any securities or investment products.

The stocks, securities, and investment instruments mentioned herein are not recommendations under SEBI (Research Analysts) Regulations, 2014. Readers are advised to conduct their own due diligence and seek independent financial advice before making any investment decisions.

Investments in securities markets are subject to market risks. Please read all related documents carefully before investing. Investing in Equity Shares,
Derivatives, Mutual Funds, or other instruments carry inherent risks, including potential loss of capital. Elearnmarkets (Kredent InfoEdge Pvt. Ltd.) does not provide any guarantee or assurance of returns on any investments. Past performance is not indicative of future performance.

Elearnmarkets Logo

Follow Us

Facebook-f X-twitter Instagram Linkedin-in Youtube Telegram

Register on Elearnmarkets

Continue your financial learning by creating your own account on Elearnmarkets.com

Register Free Account

Download App

Playstore logo
Download on app store

Categories

  • Basic Finance
  • Derivatives
  • Financial Planning
  • Fundamental Analysis
  • Technical Analysis
  • Mutual Funds
  • Miscellaneous

Popular On Elearnmarkets

  • Market Superheroes:
  • Vivek Bajaj
  • Chetan Panchamia
  • Ashish Kyal
  • Premal Parekh
  • Abhijit Paul
  • Jegan
  • Sivakumar Jayachadran
  • Jyoti Budhia
  • Vivek Gadodia
  • Vishal Mehta
  • Piyush Chaudhry
  • Santosh Pasi
  • Gomathi Shankar
  • Market Superheroes:
  • Vivek Bajaj
  • Chetan Panchamia
  • Ashish Kyal
  • Premal Parekh
  • Abhijit Paul
  • Jegan
  • Sivakumar Jayachadran
  • Jyoti Budhia
  • Vivek Gadodia
  • Vishal Mehta
  • Piyush Chaudhry
  • Santosh Pasi
  • Gomathi Shankar
  • Courses:​
  • Options Trading
  • Dow Theory
  • Momentum Trading
  • Stock Investing
  • Harmonic Chart Patterns
  • Algo Trading
  • Elliot Wave Theory
  • Advanced Excel
  • Cryptocurrency
  • NSE Certification Course
  • Courses:​
  • Options Trading
  • Dow Theory
  • Momentum Trading
  • Stock Investing
  • Harmonic Chart Patterns
  • Algo Trading
  • Elliot Wave Theory
  • Advanced Excel
  • Cryptocurrency
  • NSE Certification Course
  • Webinars:
  • Bank Nifty Scalping
  • Intraday Trading Strategies
  • Options Trading Strategies
  • Options selling
  • Price Action
  • Relative Strength
  • Tax Planning
  • Options Buying
  • Growth Stocks
  • Portfolio Management
  • Risk Management
  • Renko Charts
  • Crude Oil
  • Traders Psychology
  • Moving Average
  • Multibagger Stocks
  • Webinars:
  • Bank Nifty Scalping
  • Intraday Trading Strategies
  • Options Trading Strategies
  • Options selling
  • Price Action
  • Relative Strength
  • Tax Planning
  • Options Buying
  • Growth Stocks
  • Portfolio Management
  • Risk Management
  • Renko Charts
  • Crude Oil
  • Traders Psychology
  • Moving Average
  • Multibagger Stocks
  • Free Learning Modules:
  • Intraday Trading
  • Options Scalping
  • Swing Trading
  • Financial Modelling
  • RSI Indicator
  • Bollinger Bands
  • Pricing of Futures
  • Personal Finance
  • Initial Public Offerings (IPO)
  • Value Investing
  • Technical Indicators
  • Candlesticks
  • Chart Patterns
  • Option Greeks
  • ELSS Funds
  • Banking and Insurance
  • Real Estate
  • Gold
  • Free Learning Modules:
  • Intraday Trading
  • Options Scalping
  • Swing Trading
  • Financial Modelling
  • RSI Indicator
  • Bollinger Bands
  • Pricing of Futures
  • Personal Finance
  • Initial Public Offerings (IPO)
  • Value Investing
  • Technical Indicators
  • Candlesticks
  • Chart Patterns
  • Option Greeks
  • ELSS Funds
  • Banking and Insurance
  • Real Estate
  • Gold
  • Book Summaries:
  • Rich Dad Poor Dad
  • Psychology of Money
  • The Intelligent Investor
  • The Richest Man in Babylon
  • Think and Trade Like a Champion
  • Value Investing and Behavioural Finance
  • Trading in the Zone
  • Learn to Earn
  • Book Summaries:
  • Rich Dad Poor Dad
  • Psychology of Money
  • The Intelligent Investor
  • The Richest Man in Babylon
  • Think and Trade Like a Champion
  • Value Investing and Behavioural Finance
  • Trading in the Zone
  • Learn to Earn
  • Tools:
  • CAGR Calculator
  • SIP Calculator
  • eLearnOptions
  • Future Value Calculator
  • Present Value Calculator
  • Atal Pension Yojana
  • Cost of Delay Calculator
  • Become a Crorepati
  • Tools:
  • CAGR Calculator
  • SIP Calculator
  • eLearnOptions
  • Future Value Calculator
  • Present Value Calculator
  • Atal Pension Yojana
  • Cost of Delay Calculator
  • Become a Crorepati

© 2025 Elearnmarkets. All Rights Reserved

  • Visit Elearnmarkets
  • Courses
  • Webinars
  • Financial Guides
  • Get Free Counselling
  • Visit Elearnmarkets
  • Courses
  • Webinars
  • Financial Guides
  • Get Free Counselling

Download Our App

No Result
View All Result
  • Article Categories
    • Basic Finance
    • Derivatives
    • Financial Planning
    • Fundamental Analysis
    • Technical Analysis
    • ETFs & Mutual Funds
    • Marketshala
    • Miscellaneous
  • Language
    • Hindi
    • Bengali
    • English
  • Courses
  • Webinars
  • Stories
Get Free Course

© 2024 Elearnmarkets All Rights Reserved

Guide to Options Strategies
Discover Options Strategies For Making Money In All Market Conditions
Download Guide For FREE
Trading Day 2025