The "daily Call" From Option Alpha: Options Trading | Stock Options | Stock Trading | Trading Online

Hey everyone. This is Kirk here again from Option Alpha and welcome back to the daily call. Today, we’re going to be talking about how to properly use a collar option strategy. If you’re not familiar with a collar option strategy, a collar strategy is one where you would sell a call option above the market or above the stock price or ETF price of whatever you have shares in and you would use the proceeds to then go out and purchase a put option below the market. What’s cool about a collar strategy is that the proceeds you use from selling a call option are then redirected and applied to the put option that you purchased. It’s like one option contract is financing the other option contract on the other end. The trade-off for doing this though, versus say a regular long put option strategy where you’re just paying to buy insurance, is that when you use a collar strategy and you sell the call option above where the stock or underlying ETF that you’re trading is right now, you do cap your upside potential. And so