Synthetic educational example, not market data. Preview: no payments accepted.

StrikePath teaches options with live examples on made-up markets. Free, no sign-up.

What is a collar, in plain words?

A collar is a protective strategy in which a written call and a long put are taken against shares already owned 1, with the same expiration, to hedge the position 2. The short call's premium helps pay for the put 2. The most it can make is the call's strike minus the shares' cost, adjusted by the net premium paid or received; the most it can lose is the shares' cost minus the put's strike, adjusted the same way 2.

100 shares bought at $50, a $48 put bought and a $52 call sold, both with 30 days left at 30% implied volatility (made-up numbers). Move where the stock ends at expiry.

Source: the StrikePath engine, pricing with the Black–Scholes formula 3 at 4.3% interest a year; a simulated example, not market prices. For learning; not advice.

In numbers

By the formula the $48 put costs $0.81 and the $52 call sells for $0.99 3: a net credit of $0.18 a share. So the most this collar can make is $52 − $50 + $0.18 = $2.18 a share, the most it can lose is $50 − $48 − $0.18 = $1.82, and it breaks even at $49.82, the starting price less the credit 2.

Floor and ceiling

Below $48 the put pays the difference; above $52 the shares are likely to be called away 4. In between, the shares move as they would alone, plus the credit. Time decay and implied volatility are usually not major considerations for a collar, as their effects on the two options roughly offset 2.

What this shows, and what it doesn't

The result at expiry, a share, before fees and the bid-ask spread on two options. The call sold can be exercised against you before expiry, the day before an ex-dividend date most of all 4.

Go further

What is a protective put? →The floor alone.What is a covered call? →The ceiling alone.
Sources (4), checked 20 October 2026, 27 October 2026 and 28 October 2026
  1. The Options Industry Council, “Options Glossary”, entries under C. Read it (read 28 October 2026)
  2. The Options Industry Council, “Collar (Protective Collar)”. Read it (read 28 October 2026)
  3. Fischer Black and Myron Scholes, “The Pricing of Options and Corporate Liabilities”, Journal of Political Economy 81(3), 637–654, 1973. Read it (read 20 October 2026)
  4. The Options Industry Council, “Covered Call (Buy/Write)”. Read it (read 27 October 2026)

Now try it on a scenario of your own

Pick where a simulated stock might be, and by when: drag one dot and see, side by side, what buying shares, one option, or a pair of options (a call or put spread) would each do. Free, no sign-up.

Check a trade before you make it →