The LEAPS Collar: A Smarter Way to Protect Your Position

How to Get $40,000 Worth of Protection for $13,000 (And Make It Even Cheaper)

Let's talk about a problem you might be facing right now.

You own Microsoft. It's been good to you. At $401.84 per share, maybe really good to you. But you're starting to get that uncomfortable feeling, the one where you don't want to sell, but you also don't want to watch a big chunk of gains evaporate if the market decides to have a tantrum.

The traditional solution? Buy some protective puts. The problem? They're expensive. And if MSFT just sits there or grinds higher, you've spent a few thousand dollars on insurance you never needed.

There's a better way. And it doesn't require you to own the stock at all.

The Problem with Protecting 100 Shares of MSFT

Here's the math on owning 100 shares at current prices:

Capital Required: $40,184
What You're Risking: All $40,184 if things go really wrong (although that’s highly doubtful)
Cost of Protection: We'll get to this, but it's not cheap

That's a lot of capital tied up in one position. And if you want to protect it properly, you're looking at spending another $1,200+ on puts every few months.

What if I told you there's a way to get the same exposure, the same protection, and tie up 69% less capital?

Enter the LEAPS Collar Strategy

Instead of buying the stock, you buy a deep in-the-money LEAPS call option. Then you protect it with puts and finance those puts by selling shorter-term calls.

Here's what that looks like with MSFT trading at $401.84:

Your Position:

• Buy 1 Jan 2028 320 CALL for $124.75 (costs you $12,475)

• This gives you control of 100 shares of MSFT movement

• You've just saved $27,709 in capital compared to buying the stock

Now, that LEAPS behaves almost exactly like owning the stock. It has a delta around 0.78 to 0.80, which means when MSFT moves $1, your LEAPS moves about 78 to 80 cents. Close enough for our purposes.

But here's where it gets interesting.

Financing Your Protection

You need downside protection. With MSFT at $401.84, let's say you want to be protected if it falls to $360, about a 10% decline. That protection costs $12.35 per share, or $1,235 for the put contract.

That's real money. But what if you could make someone else pay for most of it?

Here's how:

You sell a March 20th 430 call option. You collect $5.00 per share, or $500.

That doesn't cover the full put cost yet, but stay with me.

In 36 days, that call expires. If MSFT is below $430 (which it probably will be,there's a 78% chance), you keep the $500 and do it again.

Sell the April 430 call. Collect another ~$480.
Do it one more time in May. Collect another ~$460.

Total collected from three call sales: $1,440
Cost of your protective put: $1,235
Net result: You've now paid for your protection and have $205 left over.

Understanding MSFT's Current Market Context

Before we dive deeper into the numbers, let's look at where MSFT stands right now:

This chart tells us something important: MSFT's implied volatility is at 29.93%, with an IV Rank of 39.57% and IV Percentile of 84%. That means volatility is elevated compared to recent history, which makes this an ideal time to be selling calls (you collect more premium) and buying puts (they're available, though more expensive).

The expected move shows the market pricing in movement between roughly $370 and $430 by late April. This validates our strike selection, we're selling calls at the upper end of expected movement and buying puts at the lower end.

Let's Look at the Real Numbers

You're in for $11,770. Protected below $360. Participate up to $430.

The traditional approach? $40,184 for the stock plus $1,235 for puts equals $41,419.

Same exposure. One-third the capital.

Why the June 360 Put Makes Sense

You might be wondering: why not buy cheaper puts further out of the money?

Let me show you the put options available for June 18, 2026 (126 days out):

The $360 put costs $12.35. Two to three call sales cover this completely.

Here's what it does: If MSFT falls from $401.84 down to $360, that's a 10.4% decline. The put protects you at $360 and below. So whether MSFT drops to $360, $340, $300, or even $200, you're protected. Your maximum loss is locked in once MSFT hits $360.

There's a 69% chance MSFT stays above $360 and you never need the protection. But if MSFT does fall, you're covered.

Why not the $350 put at $9.95?

It saves you $240, but look at what happens: If MSFT falls from $401.84 to $355, you're losing money on every dollar from $401.84 down to $350 with no protection. That's $5,184 in losses before your put kicks in.

With the $360 put, you're only losing from $401.84 down to $360, that's $4,184 before protection kicks in. That $1,000 difference (the protection gap) costs you way more than the $240 you saved.

Why not the $370 put at $15.00?

This protects you starting at $370 instead of $360, only $1,000 sooner. But it costs an extra $265, which means you need to sell another monthly call to pay for it. The $360 strike gives you meaningful protection without needing that extra call sale cycle.

Bottom line: The $360 put protects you from a 10.4% decline and everything beyond it. You can finance it completely with call sales. That's the sweet spot.

What Can Actually Happen?

Let's walk through the scenarios because this is where theory meets reality.

Scenario 1: MSFT Stays Range-Bound ($390-$420)

Your LEAPS slowly accumulate value as MSFT drifts higher. Each month you collect $460-$500 from selling the 430 calls. Your puts sit there as insurance you don't need.

After three months, you've collected $1,440 in call premium, fully financing your $1,235 put protection with $205 to spare.

Your effective cost basis is now $11,770. If MSFT is at $415 on June 18th, your LEAPS have $95 in intrinsic value. You're still underwater on the LEAPS themselves, but you're building credit through the call sales.

This is the scenario where the strategy works exactly as designed—you're collecting income while protected.

Scenario 2: MSFT Runs to $430

Your calls start getting tested. You have a decision to make: let them get assigned (capping your gains at $430) or roll them to the next month at a higher strike.

If you let them get assigned at $430:

• Your LEAPS have $110 in intrinsic value (430 - 320)

• You collected $14.40 in call premiums

• Your put cost you $12.35 (expires worthless)

• Net position value: $110 + $14.40 - $12.35 = $112.05

Against your initial LEAPS cost of $124.75, you're still down $12.70 per share, or -$1,270 total.

But remember, you only risked $11,770 (after call sales) to control a $40,000 position. And MSFT going from $401 to $430 is a 7.2% gain that you captured most of while using one-third the capital.

Scenario 3: MSFT Falls to $360 or Below

This is where your put protection proves its worth.

At $360, your LEAPS have $40 in intrinsic value (360 - 320). You've lost $84.75 per share on the LEAPS.

But your 360 put is now at parity. It protects you from further losses below $360.

Your net position:

• LEAPS value: $40.00

• Put value: $0 (at strike)

• Call premiums collected: +$14.40

• Put cost: -$12.35

Total value: $42.05 per share

Against your adjusted basis of $117.70, you're down about $75.65 per share, or roughly $7,565 total.

That's your maximum loss. MSFT could fall to $200, and you're still only down $7,565.

Compare this to owning the stock with no protection: at $360, you'd be down $4,184 with unlimited further downside exposure.

The Real Power: Capital Efficiency

Here's what this actually gives you:

Instead of tying up $40,184 to own 100 shares of MSFT, you've deployed $11,770 (after financing the put with call sales) to get similar exposure.

That means you have an extra $28,414 to:

• Deploy in other positions

• Keep as cash

• Use for additional LEAPS collars on different stocks

This is how professional traders think. It's not about maximum gains on one position—it's about capital efficiency across a portfolio.

Managing the Position: What You Actually Do

This isn't a "set it and forget it" strategy. Here's your calendar:

March 20 (36 days out): Your first 430 call expires.

• If MSFT is below $430: Great. Keep the $500. Sell the April 430 call.

• If MSFT is above $430: You're getting assigned. You can either accept it or roll to a higher strike for next month.

April 17: Repeat the process. Sell the May 430 call.

May 15: Last call sale before your puts expire.

June 18: Your puts expire.

• If MSFT is above $360: They expire worthless. You've successfully financed your protection and didn't need it.

• If MSFT is below $360: You're protected. Close the whole structure and reassess.

That's it. Check in once a month, roll your calls, collect premium.

What Could Go Wrong?

Let's be honest about the risks:

MSFT Takes Off: If MSFT runs to $500, you're capped at $430. You miss that move. That stings. But you made your return with way less capital at risk.

MSFT Crashes Hard: If MSFT drops to $300, you're still losing money even with the put protection. The put protects you at $360 and below, not at your original entry price. This is tail risk that no collar fully eliminates.

Time Decay: Your LEAPS, while minimal, does decay over time. If MSFT goes nowhere for two years, you're slowly losing money on theta.

Assignment Hassle: Managing monthly call assignments and rolls takes work. It's not passive.

Who This Strategy Is For

This works best if you:

• Want MSFT exposure but don't want to tie up $40k

• Are worried about a 10 to 15% correction

• Are comfortable collecting call premium monthly

• Understand you're capping upside at $430

• Have the discipline to manage monthly expirations

This doesn't work if you:

• Think MSFT is going to $500+ this year

• Want completely passive investing

• Don't have time to manage monthly calls

• Are uncomfortable with defined-risk structures

The Bottom Line

You're getting $40,000 worth of MSFT exposure and protection for $11,770 in capital.

You're protected below $360.

You collect premium monthly.

You participate in gains up to $430.

That's not a trade. That's a system for managing risk while maintaining exposure.

And here's the thing, this works on any stock, not just MSFT. The principles are the same: buy deep ITM LEAPS, sell monthly calls, buy quarterly puts, finance the puts with the calls.

It's not magic. It's just math applied systematically.

Probabilities over predictions,

Andy

If this Mental Capital series helps you think more clearly about trading, do me a favor: share it with one trader friend (or post it in your favorite community). I’m growing The Option Premium the old-fashioned way, word of mouth, and I genuinely appreciate every reader who helps spread it.

At The Option Premium, we build systematic strategies around capital preservation as a primary principle. In our publications Wealth Without Shares, The Income Foundation, and The Implied Perspective, every position is designed with defined risk and capital efficiency. We're not trying to hit home runs, we're trying to compound capital reliably over decades. If that approach resonates with you, explore our services to see how systematic options trading can work for you.

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Disclaimer: This is educational content only. Not investment advice. Options involve risk and aren't suitable for all investors. Examples are illustrative. Real results will vary. Talk to professionals before you risk real money.