Collar Vs Bull Put Spread Options Trading Strategy Comparison

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.

This strategy works well when you're of the view that the price of a particular underlying will rise, move sideways, or marginally fall.

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

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

• Buy OTM Put Option
• Sell ITM Put Option

A Bull Put Strategy involves Buy OTM Put Option + Sell ITM Put Option.

For example, If you are of the view that the price of Reliance Shares will moderately gain or drop its volatility in near future. If Reliance is currently trading at 600 then you will buy a OTM PUT OPTION at 700 and a sell a ITM PUT OPTION at 550. You will make a profit when at expiry Reliance closes at 700 level and incur losses if the prices fall down below the current price.

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

Maximum loss occurs when the stock price moves below the lower strike price on expiration date.

Max Loss = (Strike Price Put 1 - Strike Price of Put 2) - Net Premium Received

Max Loss Occurs When Price of Underlying <= Strike Price of Long Put

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

Maximum profit happens when the price of the underlying moves above the strike price of Short Put on expiration date.

Max Profit = Net Premium Received

Underlying goes up and Call option exercised

Both options unexercised

Underlying goes down and Put option exercised

Both options exercised

It protects the losses on underlying asset.

Allows you to benefit from time decay in profit situations. Helps you profit from 3 scenarios: rise, sideway movements and marginal fall of the underlying.

The profit is limited

Limited profit. Time decay may go against you in loss situations.