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What Is a Protective Collar?

By Matthew DiLallo – Updated Apr 17, 2025 at 12:08AM

Key Points

  • Protective collars limit downside risk and control costs by using put options funded by selling calls.
  • The strategy risks limiting profit if a stock's price rises beyond the call's strike price.
  • Used strategically, protective collars shield investors from sudden price drops in volatile markets.
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