If you’re worried about holding stock through earnings or into a choppy market, the collar trade is one of the most effective ways to stay invested while managing risk.
It’s not complicated — just a smart way to structure a trade when you want to protect your downside but still collect premium along the way.
Let’s say you own 100 shares of Intel (INTC) at $21.97. You’re willing to hold it, but you don’t want to risk a big drop into earnings. By selling a call at a higher strike — like $24 — and buying a put at a lower strike — say $19 — you create a collar.
This combo limits your upside if the stock rips higher, but it also protects you if the stock tanks. In this case, the call sale might bring in $0.90 while the put costs $0.45, giving you a net credit of $0.45.
That lowers your cost basis to $21.52 and sets up a defined range of profit and protection.
When to Use a Collar
A collar trade makes the most sense when you have a long stock position you want to keep — but not without a hedge. It’s ideal when volatility is low and put protection is relatively cheap, especially going into known events like earnings or Fed decisions.
The goal isn’t to hit a home run…
It’s to chip away at your cost basis over time, build in protection during uncertain stretches and still give yourself upside if the stock recovers. If the stock rallies and gets called away, great — you booked a profit. If it drops, your long put helps absorb the loss.
How to Adjust or Roll
If the stock stays in range, you can roll both sides of the trade and set up a new collar at different strikes. If the put gains value because of a drop, you can close it for a profit, reduce your basis even further and add a new protective layer.
Over time, these adjustments help repair positions and build income even in volatile conditions.
The collar isn’t flashy, but it works. It’s how you stay in core stocks without guessing every top or bottom — and without letting one bad earnings print wreck your year.
I’ll see you in the markets.
Chris Pulver
Chris Pulver Trading
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*This is for informational and educational purposes only. There is inherent risk in trading, so trade at your own risk.
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