Economics Options And Futures Questions
The collar strategy in options trading is a risk management strategy that involves the simultaneous purchase of a protective put option and the sale of a covered call option. This strategy is used to limit potential losses and protect gains in a stock position. The protective put option provides downside protection by setting a floor price for the stock, while the covered call option generates income by setting a cap on potential gains. The collar strategy is often employed when an investor wants to protect their stock position from significant downside risk while still generating some income.