Option Collar

An Option Collar is considered to be a protective strategy that is usually used to lock in profit from an equity trade once it has experienced large gains.

Options Collars are often entered upon by those who own large concentrations of a single stock due either through employment or trading.  An Options Collar will be set up in order to help ensure the monetary value of the large position.  A trader can set up an Options Collar by selling an out of the money call option while at the same time buying an out of the money put option.  In this case, the holder of the Option Collar will earn money when the underlying falls in value, but will be offset when the earning of money when the put option earns value in exact proportion to the number of shares owned by the trader.