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Collar Vs Covered Put (Married Put) Options Trading Strategy Comparison

Compare Collar and Covered Put (Married Put) options trading strategies. Find similarities and differences between Collar and Covered Put (Married Put) strategies. Find the best options trading strategy for your trading needs.

Collar Vs Covered Put (Married Put)

  Collar Covered Put (Married Put)
Collar Logo Covered Put (Married Put) 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 Covered Put is a neutral to bearish market view and expects the price of the underlying to remain range bound or go down. In this strategy, while shorting shares (or futures), you also sell a Put Option (ATM or slight OTM) to cover for any unexpected rise in the price of the shares. This strategy is also known as Married Put strategy or writing covered put strategy. The risk is unlimited while the reward is limited in this strategy. How to use a Protective Call trading strategy? The usual Covered Put looks like as below for State Bank of India (SBI) Shares which are currently traded at Rs 275 (SBI Spot Price): Covered Put Orders - SBI Stock OrdersSBI Strike Price Sell Underlying SharesSell 100 SBI Shares ... Read More
Market View Bullish Bearish
Strategy Level Advance Advance
Options Type Call + Put + Underlying Put + Underlying
Number of Positions 3 2
Risk Profile Limited Unlimited
Reward Profile Limited Limited
Breakeven Point Price of Features - Call Premium + Put Premium Futures Price + Premium Received

When and how to use Collar and Covered Put (Married Put)?

  Collar Covered Put (Married Put)
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 Covered Put works well when the market is moderately Bearish

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 a moderate drop in the price and volatility of the underlying.

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

Sell Underlying Sell OTM Put Option

Suppose SBI is trading at 300. You believe that the price will remain range bound or mildly drop. The covered put allows you to benefit from this market view. In this strategy, you sell the underlying and also sell a Put Option of the underlying and receive the premium. You will benefit from drop in prices of SBI, the Put Option will minimize your risks. If there is no change in price then you keep the premium received as profit.

Breakeven Point Price of Features - Call Premium + Put Premium
Futures Price + Premium Received

The break-even point is achieved when the price of the underlying is equal to the total of the sale price of underlying and premium received.

Compare Risks and Rewards (Collar Vs Covered Put (Married Put))

  Collar Covered Put (Married Put)
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

Unlimited

The Maximum Loss is Unlimited as the price of the underlying can theoretically go up to any extent.

Loss = Price of Underlying - Sale Price of Underlying - Premium Received

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 limited to the premiums received. The profit happens when the price of the underlying moves above strike price of Short Put.

Maximum Profit Scenario

Underlying goes up and Call option exercised

Underlying goes down and Options exercised

Maximum Loss Scenario

Underlying goes down and Put option exercised

Underlying goes up and Options exercised

Pros & Cons or Collar and Covered Put (Married Put)

  Collar Covered Put (Married Put)
Advantages

It protects the losses on underlying asset.

Its an income generation strategy in a neutral or Bearish market. Also allows you to benefit from fall in prices, range bound movements or mild increase.

Disadvantage

The profit is limited

The risks can be huge if the prices increases steeply.

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







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