OPTIONS
Collar Calculator \u2014 Protective Strategy with Limited Cost
By Worldtickers ·
Use our free collar calculator to estimate max profit, max loss, cost, and breakeven for a protective collar on stock you own. Enter your stock price, strike prices, and premiums to see the full payoff.
This collar calculator \u2014 protective strategy with limited cost tool focuses on use our free collar calculator to estimate max profit, max loss, cost, and breakeven for a protective collar on stock you own. Enter your stock price, strike prices, and premiums to see the full payoff. Use it to test option prices, strikes, premiums, expiration assumptions, and strategy outcomes so you can compare payoff scenarios, break-even levels, risk, and potential reward before placing an options trade.
Collar Calculator
Collar Calculator
Evaluate the cost and protection of a collar strategy on your stock position.
What Is a Collar?
A collar is a protective options strategy that limits both upside and downside on a stock you already own. It involves three components: owning 100 shares of stock, buying a protective put option below the current price, and selling a covered call option above the current price. The premium received from selling the call offsets some or all of the cost of buying the put, reducing the overall expense of the protection.
The strategy creates a defined range of outcomes for the position. The protective put establishes a floor below which the stock cannot lose value, while the covered call establishes a ceiling above which the stock cannot gain value. This capped range makes the collar ideal for protecting existing holdings during uncertain markets or before major events.
A popular variation is the zero-cost collar, where the call and put premiums are equal, resulting in no net cost to enter the position. The trade-off is that the zero-cost collar typically has a narrower profit range, limiting more upside potential than a collar with a paid put.
How to Use This Calculator
The calculator takes the stock price, put and call strikes, and premiums to produce a complete payoff analysis for the collar strategy.
Stock Purchase Price
Enter the price at which you purchased (or currently hold) the stock. This is used to calculate your profit or loss on the stock component of the collar. If you are entering a collar on an existing position, enter your cost basis. If you are entering a new position, enter the current stock price.
Put Strike Price
Enter the strike price of the protective put you are buying. This is the floor price below which your stock cannot lose value. The put strike should be below the current stock price. A put strike closer to the current price provides more protection but costs more. A strike further away provides less protection but is cheaper.
Put Premium
Enter the premium you pay for the protective put. This is a cost that reduces your overall return. The put premium depends on the strike price, time to expiration, and implied volatility. A put closer to the money costs more than one further out of the money.
Call Strike Price
Enter the strike price of the covered call you are selling. This is the ceiling price above which your stock cannot gain value. The call strike should be above the current stock price. A call strike closer to the current price generates more premium but caps gains sooner. A strike further away generates less premium but allows more upside.
Call Premium
Enter the premium you receive for selling the covered call. This premium offsets the cost of the protective put. The call premium depends on the strike price, time to expiration, and implied volatility. A call closer to the money generates more premium.
Formula
The key formulas for a collar are:
Net Collar Cost = Put Premium — Call Premium
This is the net cost to enter the collar. If the call premium exceeds the put premium, the collar has a net credit (zero-cost or credit collar).
Max Profit = (Call Strike — Stock Price) — Net Collar Cost
This occurs when the stock rises to or above the call strike at expiration. The stock is called away at the call strike price, and your profit is the difference between the call strike and your stock price, minus the net collar cost.
Max Loss = (Stock Price — Put Strike) + Net Collar Cost
This occurs when the stock falls to or below the put strike at expiration. The protective put limits the loss to the difference between your stock price and the put strike, plus the net collar cost.
Breakeven = Stock Price + Net Collar Cost
The stock must rise above this price for the collar position to be profitable at expiration. If the net collar cost is zero, the breakeven equals the stock purchase price.
Examples
Example 1: Protective Collar on AAPL
You own AAPL at $150. You buy the $140 put for $2.00 and sell the $160 call for $2.50, for a net collar credit of $0.50. Your maximum profit is ($160 — $150) + $0.50 = $10.50 per share, or $1,050 per collar. Your maximum loss is ($150 — $140) — $0.50 = $9.50 per share, or $950 per collar. The zero-cost collar (or credit collar) provides protection with no net cost. AAPL must stay between $140 and $160 for the collar to work as intended.
Example 2: Zero-Cost Collar on MSFT
You own MSFT at $400. You buy the $380 put for $4.00 and sell the $420 call for $4.00, for a net collar cost of $0 (zero-cost collar). Your maximum profit is ($420 — $400) = $20 per share, or $2,000 per collar. Your maximum loss is ($400 — $380) = $20 per share, or $2,000 per collar. The zero-cost collar creates a symmetric range with equal upside and downside from the current price, providing protection without any out-of-pocket cost.
Example 3: Tight Collar for Maximum Protection
A stock is at $100. You buy the $95 put for $3.00 and sell the $105 call for $2.50, for a net collar cost of $0.50 per share. Max profit is ($105 — $100) — $0.50 = $4.50 per share, or $450 per collar. Max loss is ($100 — $95) + $0.50 = $5.50 per share, or $550 per collar. This tight collar ($95/$105 range) provides strong downside protection but limits upside to just 5% above the current price. The cost is low because the call and put strikes are close to the current price.
Tips
Align the Put Strike with Your Risk Tolerance
The put strike determines the floor price for your stock. If you can tolerate a 10% decline, set the put strike 10% below the current price. If you want tighter protection, set it closer (e.g., 5% below). The closer the put strike is to the current price, the more protection you get but the more it costs. Balance protection level against cost based on your risk tolerance and market outlook.
Use the Call Premium to Offset Put Cost
The primary benefit of a collar over a standalone put is the premium received from selling the call, which offsets the put cost. Choose a call strike that generates enough premium to partially or fully offset the put premium. If you want a zero-cost collar, find strikes where the call and put premiums are approximately equal. This eliminates the out-of-pocket cost but narrows your profit range.
Consider Dividend Dates
If the stock pays dividends during the collar period, factor this into your analysis. The collar does not prevent you from receiving dividends while you hold the stock. However, if the stock rises above the call strike before the ex-dividend date, the call may be exercised early, causing you to lose the stock and future dividends. Set the call strike far enough above the current price to minimize early assignment risk around dividend dates.
Roll the Collar as the Stock Moves
As the stock price changes, the collar may need adjustment. If the stock rises toward the call strike, consider rolling the call up and out to lock in gains and maintain upside. If the stock falls toward the put strike, consider rolling the put down and out to extend protection. Regular adjustment keeps the collar aligned with your current outlook and risk tolerance.
FAQ
What is a collar options strategy?
A collar is a protective options strategy that limits both upside and downside on a stock you already own. It involves three components: owning 100 shares of stock, buying a protective put option below the current price, and selling a covered call option above the current price. The premium received from selling the call offsets some or all of the cost of buying the put. This creates a defined range of outcomes for the position.
When should I use a collar?
A collar is ideal when you want to protect existing stock holdings from downside risk while accepting limited upside in exchange. It is commonly used during uncertain markets, before earnings announcements, or when you want to hold a stock long-term but reduce portfolio volatility. The collar is also popular for hedging concentrated stock positions or protecting unrealized gains from a recent rally.
What is a zero-cost collar?
A zero-cost collar is constructed so that the premium received from selling the covered call exactly offsets the premium paid for the protective put, resulting in no net cost to enter the position. This is achieved by selecting call and put strikes where the premiums are equal. The trade-off is that the zero-cost collar typically has a narrower profit range than a collar with a paid put, limiting more upside potential.
What is the maximum profit on a collar?
The maximum profit is the call strike price minus the stock purchase price minus the net cost of the collar (put premium paid minus call premium received). This occurs when the stock rises to or above the call strike at expiration, causing the call to be exercised and the stock to be called away at the call strike price. The profit is capped because the short call obligates you to sell at the call strike.
What is the maximum loss on a collar?
The maximum loss is the stock purchase price minus the put strike price plus the net cost of the collar (put premium paid minus call premium received). This occurs when the stock falls to or below the put strike at expiration. The protective put limits the loss because you can sell the stock at the put strike price. The net collar cost is a sunk cost that adds to the total loss.
How does the collar affect dividends?
If the stock pays dividends during the collar period, you still receive the dividends as the stock owner. However, if the stock rises above the call strike before the ex-dividend date, the call may be exercised early, causing you to lose the stock and future dividends. To avoid this, some traders set the call strike further out of the money or close the collar before the ex-dividend date.
Can I adjust a collar after entering?
Yes. You can adjust the collar by rolling the call or put to different strikes or expirations. Rolling the call up and out (to a higher strike and later expiration) gives more upside potential but may increase the cost. Rolling the put down and out (to a lower strike and later expiration) reduces protection but lowers the cost. Adjustments should be based on changes in your market outlook and risk tolerance.
How does a collar compare to just buying a put?
A collar is cheaper than buying a protective put alone because the call premium offsets the put cost. However, the collar limits your upside, while owning a put alone preserves unlimited upside potential. A collar is better when you are willing to cap gains in exchange for lower protection cost, while a standalone put is better when you want full upside participation and are willing to pay more for protection.
What strikes should I use for a collar?
The put strike should be at a level where you are comfortable limiting losses (e.g., 5-10% below the current stock price). The call strike should be at a level where you are comfortable selling the stock (e.g., 5-15% above the current price). The width between the put and call strikes determines the range of outcomes: a narrower range provides tighter protection but less upside, while a wider range allows more upside but less protection.
What is the ideal expiration for a collar?
Most collar traders use 30-90 days to expiration. Shorter expirations (30 days) provide cheaper protection but require frequent rolling. Longer expirations (90+ days) provide more protection time but cost more (wider time value differential between put and call). The ideal expiration depends on your holding period and when you need the protection. Many traders align the collar expiration with a specific event or time horizon.