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Collar Vs Bear Put Spread Options Trading Strategy Comparison

Compare Collar and Bear Put Spread options trading strategies. Find similarities and differences between Collar and Bear Put Spread strategies. Find the best options trading strategy for your trading needs.

Collar Vs Bear Put Spread

  Collar Bear Put Spread
Collar Logo Bear Put Spread Logo
About Strategy A Collar is similar to Covered Call but involves another position of buying a Put Option to cover the fall in the price of the underlying. It involves buying an ATM Put Option & selling an OTM Call Option of the underlying asset. It is a low risk strategy since the Put Option minimizes the downside risk. However, the rewards are also limited and is perfect for conservatively Bullish market view. Suppose you are holding shares of SBI currently trading at Rs 250. You can deploy a collar strategy by selling a Call Option of strike price Rs 300 while at the same time purchasing a Rs 200 strike price Put option. If the price rises to Rs 300, your benefit from increase in value of your holdings and you will lose net premiums. If the price falls... Read More The Bear Put strategy involves selling a Put Option while simultaneously buying a Put option. Contrary to Bear Call Spread, here you pay the higher premium and receive the lower premium. So there is a net debit in premium. Your risk is capped at the difference in premiums while your profit will be limited to the difference in strike prices of Put Option minus net premiums. This strategy is used when the trader believes that the price of underlying asset will go down moderately. This strategy is also known as the bear put debit spread as a net debit is taken upon entering the trade. This strategy has a limited risk as well as limited rewards. How to use the bear put spread options strategy? The bear put spread strategy looks like... Read More
Market View Bullish Bearish
Strategy Level Advance Advance
Options Type Call + Put + Underlying Put
Number of Positions 3 2
Risk Profile Limited Limited
Reward Profile Limited Limited
Breakeven Point Price of Features - Call Premium + Put Premium Strike Price of Long Put - Net Premium

When and how to use Collar and Bear Put Spread?

  Collar Bear Put Spread
When to use?

The Collar strategy is perfect if you're Bullish for the underlying you're holding but are concerned with risk and want to protect your losses.

The bear call spread options strategy is used when you are bearish in market view. The strategy minimizes your risk in the event of prime movements going against your expectations.

Market View Bullish

When you are of the view that the price of the underlying will move up but also want to protect the downside.

Bearish

When you are expecting the price of the underlying to moderately drop.

Action
  • Buy Underlying
  • Buy 1 ATM Put Option
  • Sell 1 OTM Call Option

  • Buy ITM Put Option
  • Sell OTM Put Option

Breakeven Point Price of Features - Call Premium + Put Premium
Strike Price of Long Put - Net Premium

The breakeven point is achieved when the price of the underlying is equal to strike price of long Put minus net premium.

Compare Risks and Rewards (Collar Vs Bear Put Spread)

  Collar Bear Put Spread
Risks Limited

You will incur maximum losses when price of the underlying is less than the strike price of the Put Option.

Max Loss = Purchase Price of Underlying - Strike Price of Long Put - Net Premium Received

Limited

The maximum loss is limited to net premium paid. It occurs when the price of the underlying is less than strike price of long Put..

Max Loss = Net Premium Paid.

Rewards Limited

You will incur maximum profit when price of underlying is greater than the strike price of call option.

Max Profit = Strike Price of Short Call - Purchase Price of Underlying + Net Premium Received

Limited

The maximum profit is achieved when the strike price of short Put is greater than the price of the underlying..

Max Profit = Strike Price of Long Put - Strike Price of Short Put - Net Premium Paid.

Maximum Profit Scenario

Underlying goes up and Call option exercised

Underlying goes down and both options exercised

Maximum Loss Scenario

Underlying goes down and Put option exercised

Underlying goes up and both options not exercised

Pros & Cons or Collar and Bear Put Spread

  Collar Bear Put Spread
Advantages

It protects the losses on underlying asset.

Risk is limited. It reduces the cost of investment.

Disadvantage

The profit is limited

The profit is limited.

Simillar Strategies Covered Put Bull, Call Spread, Bull Put Spread Bear Call Spread, Bull Call Spread