Collar Calculator

Collar at a glance

How a collar works

The collar combines two simpler trades. The long put is a protective put that sets a floor, and the short call is a covered call that sets a ceiling. Selling the call reduces or cancels the cost of the put, and when the two premiums roughly offset, the trade is called a zero cost collar. The result is a band: you participate in the stock's moves between the two strikes and are shut out of moves beyond them in either direction.

At expiration the payoff looks like a bull call spread. Below the put strike the line is flat at your maximum loss, the drop from your purchase price to the put strike plus any net debit. Above the call strike it is flat at your maximum gain, the rise to the call strike minus any net debit or plus any net credit. Between the strikes the position moves one for one with the stock. With strikes spaced evenly, as the calculator builds them, the put often costs a bit more than the call because of skew.

Before expiration the collar is much less sensitive to the stock than owning shares alone, and less still near either strike. Time decay and implied volatility tend to offset between the two options, so their net effect is usually small. When the stock drifts toward the put, the long put dominates and the position benefits from rising volatility. When it drifts toward the call, the short call dominates and time decay works in your favor.

Collar example with real numbers

With the stock at $100, implied volatility at 30%, a 4.1% risk free rate and no dividend, you would buy 100 shares at $100.00, buy 1 95 put (32 days) at $1.43, sell 1 105 call (32 days) at $1.78. That is a net debit of $9,965. At expiration a maximum profit of $535 and a maximum loss of $465, with a breakeven at $99.65. The lognormal chance of profit is 51%.

These are theoretical American option prices from the Bjerksund and Stensland model, not live quotes. Load any ticker in the collar calculator above to run the same math on real market prices.

When to use a collar

• You hold shares with a sizable gain and want to protect it through a period of uncertainty.
• You want downside protection but do not want to pay full price for a protective put.
• You are content to give up gains above a target price in exchange for a defined floor.
• You need to limit risk on a concentrated stock position for a set period.

Max profit, max loss and breakeven

Maximum profit

Call strike minus stock purchase price minus net option cost, times 100, where net option cost is the put premium minus the call premium. If the collar opens for a net credit, that credit adds to the maximum profit instead.

Maximum loss

Stock purchase price minus put strike plus net option cost, times 100. This floor holds however far the stock falls before expiration.

Breakeven

Stock purchase price plus net option cost per share when the collar costs a net debit, or stock purchase price minus the net credit when the call brings in more than the put costs.

Collar Greeks

• Delta: Delta is positive but well below one per share, because the long put and short call both offset the stock. Net delta is highest between the strikes and falls toward zero beyond either one.
• Gamma: Gamma is positive near the put strike and negative near the call strike. With the stock in the middle, the two roughly cancel.
• Theta: Theta is close to neutral at entry. It turns negative as the stock nears the put and positive as it nears the call.
• Vega: Vega is usually small. The collar gains from rising volatility when the stock is near the put strike and loses from it when the stock is near the call strike.

See the live numbers for your position in the Greeks tab of the calculator, or explore a single option in the options Greeks calculator.

Early exercise and assignment risk

The short call in a collar carries the same dividend risk as any covered call. If the stock rallies above the call strike ahead of an ex dividend date and the dividend exceeds the call's remaining time value, you may be assigned the night before the ex date. Your shares are sold at the call strike, you lose the dividend, and you are left holding a put that is now far out of the money. Sell that put promptly to recover whatever value it still has, since it no longer protects anything.

The long put is a right, not an obligation. You can exercise it on any business day to sell the shares at the put strike, though selling the put and shares separately usually captures more while time value remains. Pin risk appears when the stock closes near either strike at expiration, because you may not know whether your shares were called away or put to the market. Rolling the whole collar to a later expiration before the ex date or the final session keeps the structure intact and reduces surprises.

The calculator's Early exercise risk tab flags short legs that are likely to be assigned. For a single option, use the early exercise calculator or read how early exercise and assignment work.

Pros and cons

How to manage a collar

• Set the put strike by the loss you can accept and the call strike by the price at which you would sell.
• Roll the call up and out when the stock approaches it if you want to keep more upside.
• After a decline, consider rolling the put down to harvest its gain while keeping some protection.
• Roll the entire collar before an ex dividend date or expiration whenever the call is in the money.

Collar FAQ

Related strategies

Educational tool, not financial advice. Calculations are theoretical and depend on your inputs; real fills, fees, early assignment and dividends can change results. Options involve risk and are not suitable for every investor.