The Collar Strategy: How One Cautious Investor Kept the Upside, and Slept at Night

In the spring of 2020, David, a measured, long-time investor in his late 50s, found himself sitting on a portfolio that had finally bounced back from a painful downturn. The gut-punch of March had turned into cautious optimism by June. Gains were back, balances were higher, and for the first time in months, his trading account didn’t keep him up at night.

But that was the problem. “I wanted to hold on to my winners,” David later said, “but I couldn’t shake the feeling that the next drop was around the corner.”

So he faced a dilemma: sell and lock in gains, or hold and hope for more?

There was a third option, a strategy that Wall Street traders had used for decades, quietly shielding portfolios while letting them breathe.

It was called the collar.

When Protection Meets Discipline

The collar isn’t a flashy strategy. It won’t win a trading contest or make the rounds on social media. But for investors like David, those sitting on gains they don’t want to give up, and uncertainty they don’t want to ignore, it’s a near-perfect fit.

Here’s how it works:

• You own the stock or ETF

• You sell an out-of-the-money call (giving someone the right to buy it from you at a higher price)

• You buy an out-of-the-money put (giving you the right to sell it at a lower price)

You cap your upside. You protect your downside. And, if structured well, you can often do it at little or no cost.

For David, it meant keeping his long-term investment intact, while defining the worst-case scenario. A financial seatbelt, with some breathing room.

The Market Turns Again, And He’s Ready

By late fall, volatility returned. Markets began chopping sideways, and headlines reminded David why he had always feared getting too comfortable. But this time was different.

He wasn’t making emotional decisions.

He wasn’t doom-scrolling earnings reports.

He wasn’t watching every tick with panic.

Because the collar gave him something most strategies don’t: clarity.

His losses were defined. His gains were still available (up to a point). He wasn’t gambling. He was managing.

It’s the same reason pension funds use collars to hedge concentrated equity positions. Why executives protect stock awards through structured options. And why more and more disciplined retail traders are adding collars to their playbook, not as a “trade,” but as risk management in its purest form.

Breaking Down the Collar Strategy

Let’s walk through it like David did, without any jargon.

1. You own a stock or ETF that has appreciated and you don’t want to sell.

2. You sell a call option above the current price. This creates income, but if the stock rises above that level, you’re forced to sell or give up further gains.

3. You buy a put option below the current price. This protects you if the stock falls hard.

The result? You’ve created a range: gains up to the call’s strike, protection below the put’s strike.

Everything in between? That’s your safety zone, a defined band of exposure.

And the best part? The premium you collect from the call can offset, or even completely cover, the cost of the put.

That’s why it’s often called a zero-cost collar.

Why Traders Don’t Use It More Often

The answer is simple: it’s not exciting.

The collar appeals to the investor, not the gambler. It limits both downside and upside. And in an age of meme stocks, FOMO, and YouTube gurus promising 300% overnight gains, giving up the chance for unlimited profit sounds like heresy.

But for traders with discipline, for those with something to protect, collars are like bumpers in a bowling alley. You can still aim for the strike, but you’re not ending up in the gutter.

And, ironically, by playing defense, many traders find they stay in the game longer, and perform better.

The Hidden Power of Collars in a Portfolio

What surprised David most wasn’t just that the collar kept him calm. It was that it allowed him to take more intelligent risks elsewhere. “I didn’t realize how much of my mental bandwidth was spent on worrying,” he said. “Once I had that collar in place, I could actually start thinking strategically again.”

That’s the hidden advantage: collars free up focus. They allow you to stop reacting and start planning.

And in a diversified portfolio, traders can stagger collars across sectors, rebalance exposure without selling underlying holdings, and even layer them tactically before major events, earnings, elections, interest rate decisions.

Variations: Building the Collar That Fits You

Collars are customizable.

• Want more downside protection? Bring the put strike closer to the stock.

• Want more upside potential? Push the call strike further out.

• Want to generate income? Choose strikes that net a credit.

• Concerned about volatility? Collars can reduce your portfolio’s overall beta.

It’s not about finding the perfect setup. It’s about controlling your risk, based on your goals.

Even synthetic collars, using LEAPS calls and short calls to replicate long stock, can offer similar benefits with less capital tied up. And in retirement accounts or tax-sensitive situations, collars offer a way to hedge without selling.

From Fear-Based Trading to Probability-Based Decisions

David didn’t know what the market would do next. He didn’t need to.

Because the collar took him out of the prediction game, and into the probability game.

He wasn’t trying to pick tops or bottoms. He was building a band of protection around his capital and letting the market move inside that band.

It’s a subtle shift in thinking, from trying to be right, to trying not to be wrong.

And in options trading, that’s where the edge lies.

Final Word: Trade to Stay in the Game

There’s a point in every trader’s journey when the focus shifts, from chasing returns to preserving them. From trying to “beat the market” to outlasting it.

Collars don’t promise glory. They don’t spike adrenaline. But they offer something that matters more: durability.

The best traders are the ones still standing after the storm. And sometimes, all that takes is a smart collar, quietly doing its job.

Probabilities over predictions,

Andy Crowder

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