How to use this calculator
- Enter your stock cost basis and the number of shares held.
- Enter the protective put you buy - its strike and the premium paid.
- Enter the covered call you sell - its strike and the premium received.
- Read the result: net cost, protected floor, capped ceiling, max loss, and max gain.
- Adjust the two strikes to trade off more downside protection against the upside you give up.
What it tells you: the exact floor and ceiling a collar locks around your shares, and what that protection costs.
How this calculator works
A collar wraps a stock holding in two options: a protective put you buy below the price to set a floor, and a covered call you sell above the price to set a ceiling and help pay for the put. Enter your cost basis, the two strikes and the two premiums, and the calculator works out exactly where your outcomes are pinned.
The net cost is the put premium minus the call premium, times your shares — a debit if the put costs more, a credit if the call brings in more, and roughly zero for a "costless collar". Your max loss is fixed at the put strike (less the net cost), and your max gain at the call strike (less the net cost). Breakeven is your cost basis plus the net cost per share — the price at which the whole position is flat.
The payoff diagram makes the shape obvious: a flat floor on the left where the put protects you, a sloped middle where you ride the stock, and a flat ceiling on the right where the call caps you. The downside-protection and upside-cap percentages show how much room you have given up on each side relative to today's price.
When a collar makes sense
The classic use is protecting an unrealised gain you are not ready to sell — locking a range on an appreciated holding through earnings, a lock-up expiry, or into year-end for tax reasons. Because the short call subsidises the put, the protection is far cheaper than buying a put alone, often close to free. The trade-off is real: you give up any gain above the call strike.
Choose your strikes to match how much protection you want versus how much upside you are willing to surrender. A tight collar (strikes close to the price) is cheap and very protective but caps gains quickly; a wide collar leaves more room in both directions but costs more or protects less.
Worked example
A fixed, hypothetical illustration — not live market data.
You hold 100 shares with a $100 cost basis. You buy the $95 put for $2.00 and sell the $110 call for $1.50.
- Net cost: ($2.00 − $1.50) × 100 = $50 debit.
- Protected floor: $95. Capped ceiling: $110.
- Max loss: ($95 − $100 − $0.50) × 100 = −$550.
- Max gain: ($110 − $100 − $0.50) × 100 = $950.
- Breakeven: $100 + $0.50 = $100.50.
- Protection / cap: about 5% of downside protected, upside capped about 10% above today.
Common mistakes
- Capping upside too tightly. A call strike just above the price funds a cheap put but surrenders most of your potential gain — match the ceiling to your real upside view.
- Forgetting the stock can be called away. Above the call strike your shares are sold at the ceiling, which may trigger taxes on an appreciated holding.
- Ignoring early assignment. The short call can be assigned early, especially near an ex-dividend date.
- Measuring P&L against the wrong basis. Max loss and gain depend on your actual cost basis, not today's price — enter the price you paid.
- Setting the put strike above the price by accident. That locks in a sale near today's level and costs far more; the calculator flags it.
Frequently asked questions
What is a collar?
A collar is a three-part position on stock you own: the shares, a protective long put at a lower strike that sets a floor, and a short covered call at a higher strike whose premium helps pay for the put. The result caps both your downside and your upside — a low-cost way to lock in a range around a holding.
What is the net cost, and what is a "costless collar"?
Net cost per share = put premium paid − call premium received. If the call premium fully pays for the put, the net cost is about zero — a "costless collar". If the call brings in more than the put costs, the collar is a net credit; if the put costs more, it is a net debit.
How are max loss and max gain calculated?
Max loss = (put strike − stock cost basis − net cost per share) × shares: below the put strike, the put lets you sell at that floor. Max gain = (call strike − stock cost basis − net cost per share) × shares: above the call strike, your shares are called away at that ceiling. Both are capped, which is the whole point of a collar.
What do the protected floor and capped ceiling mean?
The protected floor is the put strike — the lowest effective price you can sell your shares for at expiration, no matter how far the stock falls. The capped ceiling is the call strike — the highest effective price you receive, because above it the short call has your shares called away. Between the two, your stock moves normally.
When should I use a collar?
Most often to protect an unrealised gain you do not want to sell yet — for example locking in a range on an appreciated holding through an uncertain event or into year-end. It is cheaper than buying a put outright because the short call subsidises it, at the cost of giving up upside beyond the call strike.
Collar vs buying a protective put on its own?
A standalone protective put keeps all your upside but costs full premium, which is a constant drag. A collar sells a call to offset most or all of that cost, so the protection is cheap or free — but you cap your upside at the call strike. Choose the collar when you value cheap, defined protection over unlimited upside.
What happens at expiration in each zone?
If the stock is below the put strike, you exercise the put and sell at the floor. Between the strikes, both options expire worthless and you keep the shares, having paid (or received) the net cost. Above the call strike, the call is assigned and your shares are sold at the ceiling. Watch for early assignment on the short call near ex-dividend dates.
Related tools and guides
A collar is a covered call plus a put — model the income leg on its own with the Covered Call Calculator, or map any custom structure with the Payoff Diagram Builder.
Check whether the call you're selling is richly priced with the IV Rank Calculator, and look up any term in the options glossary. New to it? Start with What is a collar? Deciding between strategies? See Covered Call vs Collar.
Educational tool only. Nothing here is financial advice. A collar caps both loss and gain and can have your shares called away or assigned early. Size positions accordingly.