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Long Put Vs Collar Options Trading Strategy Comparison

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

Long Put Vs Collar

  Long Put Collar
Long Put Logo Collar Logo
About Strategy A Long Put strategy is a basic strategy with the Bearish market view. Long Put is the opposite of Long Call. Here you are trying to take a position to benefit from the fall in the price of the underlying asset. The risk is limited to premium while rewards are unlimited. Long put strategy is similar to short selling a stock. This strategy has many advantages over short selling. This includes the maximum risk is the premium paid and lower investment. The challenge with this strategy is that options have an expiry, unlike stocks which you can hold as long as you want. Let's assume you are bearish on NIFTY and expects its price to fall. You can deploy a Long Put strategy by buying an ATM PUT Option of NIFTY. If the price of NIFTY share... Read More 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
Market View Bearish Bullish
Strategy Level Beginners Advance
Options Type Put Call + Put + Underlying
Number of Positions 1 3
Risk Profile Limited Limited
Reward Profile Unlimited Limited
Breakeven Point Strike Price of Long Put - Premium Paid Price of Features - Call Premium + Put Premium

When and how to use Long Put and Collar?

  Long Put Collar
When to use?

A long put option strategy works well when you're expecting the underlying asset to sharply decline or be volatile in near future.

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.

Market View Bearish

When you are expecting a drop in the price of the underlying and rise in the volatility.

Bullish

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

Action
  • Buy Put Option

Let's assume you're Bearish on Nifty currently trading at 10,400. You expect it to fall to 10,000 level. You buy a Put option with a strike price 10,000. If the Nifty goes below 10,000, you will make a profit on exercising the option. In case the Nifty rises contrary to expectation, you will incur a maximum loss of the premium.

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

Breakeven Point Strike Price of Long Put - Premium Paid

The breakeven is achieved when the strike price of the Put Option is equal to the premium paid.

Price of Features - Call Premium + Put Premium

Compare Risks and Rewards (Long Put Vs Collar)

  Long Put Collar
Risks Limited

The risk for this strategy is limited to the premium paid for the Put Option. Maximum loss will happen when price of underlying is greater than strike price of the Put option.

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

Rewards Unlimited

This strategy has the potential to earn unlimited profit. The profit will depend on how low the price of the underlying drops.

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

Maximum Profit Scenario

Underlying goes down and Option exercised

  • Maximum Profit = Unlimited
  • Maximum Profit Achieved When Price of Underlying = 0
  • Profit = Strike Price of Long Put - Premium Paid

Underlying goes up and Call option exercised

Maximum Loss Scenario

Underlying goes up and Option not exercised

  • Max Loss = Premium Paid + Commissions Paid
  • Max Loss Occurs When Price of Underlying >= Strike Price of Long Put

Underlying goes down and Put option exercised

Pros & Cons or Long Put and Collar

  Long Put Collar
Advantages

Unlimited profit potential with risk only limited to loss of premium.

It protects the losses on underlying asset.

Disadvantage

You may incur 100% loss in premium if the underlying price rises.

The profit is limited

Simillar Strategies Protective Call, Short Put, Long Straddle Covered Put Bull, Call Spread, Bull Put Spread