An equity collar is simply the coupling of two basic, very commonly used equity option strategies into one with a profit & loss profile that could suit most stock investors at some point in their investing careers. For a position in the underlying stock, it combines the downside price protection of a protective put in return for limited upside profit potential of a covered call. Purchase of the out-of-the-money put can at least in part be financed by the premium received from writing the out-of-the-money call, resulting in a relatively small net debit for establishing the position. Depending on the strike prices chosen and their market prices, an equity collar may from time to time be established at a net credit, with an investor actually taking in money to protect underlying shares already owned. This strategy is particularly appropriate for any investor whoï¿½s net worth lies mainly in one large stock position.
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