A collar is a three-leg order: you buy shares, buy a put, and sell a call, all executed together. The premium collected from the call offsets, and sometimes fully covers, the cost of the put. The trade-off is upside. A protective put leaves your upside uncapped; a collar caps it at the call's strike in exchange for a cheaper, often near-zero-cost, hedge. In short: a collar is the difference between paying full price for insurance and trading away some upside for cheaper insurance, both built in at entry, not added later. |