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OptionsMath

Collar Calculator

Collar profit or loss equals stock price at expiration minus stock cost basis, plus the maximum of put strike minus stock price or zero, minus the maximum of stock price minus call strike or zero, plus call premium minus put premium, times 100 shares times number of contracts.

Expiration scenarios

Solution

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Collar Formula

Net premium shifts break-even. The put strike defines the downside floor, and the short call strike defines the upside cap.

Worked Examples

Load these collar examples to compare zero-cost, protected-downside, and sideways-stock outcomes.

ZERO-COST

How do you model a near-zero-cost collar?

An investor owns 100 shares at $72, buys a $68 put for $1.80, and sells a $78 call for $1.80. The stock finishes at $80.

  • Net premium = $1.80 - $1.80 = $0.
  • Stock gain = ($80 - $72) x 100 = $800.
  • Short call obligation = ($80 - $78) x 100 = $200.
  • Net profit = $800 - $200 = $600.

Result: the collar earns $600.00 and is capped above the $78 call strike.

The stock finished higher, but the short call gave back gains above $78.

PROTECTED DROP

What happens if the stock falls below the put strike?

A trader owns 200 shares at $50, buys $45 puts for $2.50, and sells $58 calls for $1.20. The stock finishes at $40.

  • Net premium = $1.20 - $2.50 = -$1.30 per share.
  • Stock P/L = ($40 - $50) x 200 = -$2,000.
  • Put value = ($45 - $40) x 200 = $1,000.
  • Net loss = -$2,000 + $1,000 - $260 = -$1,260.

Result: the collar loses $1,260.00 and the put limits additional downside.

The put strike sets the floor, but the net debit still matters.

SIDEWAYS

How does a collar behave inside the strikes?

An investor owns stock at $100, buys a $92 put for $2, sells a $112 call for $2.50, and the stock finishes at $104.

  • Net premium = $2.50 - $2.00 = $0.50 credit.
  • Stock gain = $4 x 100 = $400.
  • Both options expire out of the money.
  • Net profit = $400 + $50 credit = $450.

Result: the collar earns $450.00 while neither option finishes in the money.

Inside the strikes, collar P/L behaves much like stock plus or minus the net premium.

How It Works

A collar combines long stock, a long protective put, and a short covered call. The put defines a downside floor, while the short call helps pay for the put but caps upside above the call strike. The calculator models expiration payoff from all three pieces.

Example Problem

You own stock at $100, buy a $95 put for $3, and sell a $110 call for $2. The stock finishes at $104. What is the collar profit or loss?

  1. Net premium = $2 call credit - $3 put debit = -$1 per share.
  2. Stock P/L = ($104 - $100) x 100 = $400.
  3. The put and call both expire out of the money.
  4. Net P/L = $400 - $100 net debit = $300 profit.
  5. Break-even equals $100 - (-$1) = $101.
  6. The downside floor is ($95 - $100 - $1) x 100 = -$600.

A collar trades unlimited upside for a defined downside zone. It can be opened for a debit, credit, or near-zero cost.

Key Concepts

Collars are often used to protect stock gains or reduce portfolio drawdown risk. The put strike sets the approximate floor, the call strike sets the cap, and the net premium shifts break-even.

Applications

  • Planning a hedged stock exit range.
  • Comparing zero-cost collar candidates.
  • Estimating capped upside versus protected downside.
  • Sizing put and call contracts around 100-share lots.

Common Mistakes

  • Ignoring the call premium when calculating break-even.
  • Forgetting that upside is capped above the short call strike.
  • Using unequal contract counts for the put and call legs.
  • Treating expiration payoff as the same thing as the live mark-to-market value.

Frequently Asked Questions

What is an options collar?

A collar is long stock plus a long put and a short call. The put protects downside below its strike, while the short call caps upside above its strike.

How do I calculate collar break-even?

Break-even equals stock cost minus the net premium received. If the collar is opened for a net debit, subtracting a negative credit effectively adds that debit to the stock cost.

What is a zero-cost collar?

A zero-cost collar is structured so the call premium approximately pays for the put premium. The hedge may still have opportunity cost because the short call limits upside.

What is the maximum profit on a collar?

Maximum profit is usually reached at or above the short call strike. It equals call strike minus stock cost plus net premium, multiplied by shares.

What is the maximum loss on a collar?

Maximum loss is usually reached at or below the put strike. It equals stock cost minus put strike minus net premium, multiplied by shares.

Reference: Options Industry Council, Collar strategy description and expiration payoff definitions.

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