The Collar
Last lesson's floor came with a bill. This lesson pays it. The collar combines the two strategies you already know — own shares, buy a protective put, and sell a covered call — so the call's premium funds the put's cost. A floor below, a ceiling above, often for little or nothing out of pocket.
Own 100 shares. Buy a put below the current price — that's your floor. Sell a call above it — that's your ceiling, and its premium pays some or all of the put's bill. Struck evenly, the two premiums can nearly cancel: the famous 'costless' collar. Costless in cash, that is — never in trade-offs.
Until expiration, your position lives in a band. Below the put strike, losses stop — you can always exit at the floor. Above the call strike, gains stop — your shares sell at the ceiling you chose. In between, you're a normal shareholder. You've traded the wild edges of the distribution for a defined middle.
Say it plainly: the collar's cost isn't cash, it's the ceiling. If the stock rips far past your call strike, you sold at the ceiling and that's that. A collar is for when protection matters more than the long tail of upside — a big position you must hold but can't afford to watch collapse.
Executives hedging concentrated company stock, investors carrying a huge low-cost-basis position toward a known date, anyone who needs to hold through a window of danger without betting the outcome. The theme is always the same: the holder needs certainty more than possibility.
Look at what you now own: income on your shares, paid entries at your price, a mechanical loop, a floor, and a band. Five strategies, one personality — every single one decides its numbers before the market gets a vote. That's what makes them the discipline unit, and it's the standard the rest of the course gets judged against.
Floor bought, ceiling sold, bill settled between them. The collar closes the discipline unit the way it began: every important number chosen calmly, in advance, by you.
Not financial advice · Educational only