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Collar

You're holding 50 ETH at 2,400. You're long-term bullish but the next two weeks look ugly. FOMC, CPI, and a whale wallet just moved 40k ETH to Binance. You want downside protection but you don't want to pay 3,200 for a put. A collar locks your position into a bounded range for zero cost.

Buy a put below. Sell a call above. The call premium pays for the put. Your losses are floored, your gains are capped, and you didn't spend a dollar.

💡

A collar is what happens when you add a risk reversal to your spot position. It's also a protective put funded by a covered call. All roads lead back to put-call parity.

What You Do​

The Setup
Ownthe underlying asset
Buy1 OTM put (downside protection)
Sell1 OTM call (finances the put)
Max Profit
Call strike - entry
Max Loss
Entry - put strike
Net Cost
Often near zero
Margin
Hold underlying

How the P&L Works​

Three zones. No surprises.

  1. Below the put strike. Losses are floored. The put kicks in and offsets further downside dollar-for-dollar. You lose (entry - put strike) minus any net credit. That's the worst-case. Period.
  2. Between put and call strikes. Your "allowed range." You participate in spot movement normally. The options are both OTM and don't affect your P&L.
  3. Above the call strike. Gains are capped. The short call offsets every dollar of upside past the strike. You made (call strike - entry) plus any net credit. BTC moons to 150k? You don't care. You already left at the call strike.

Worked Example​

You hold 1 BTC bought at 93,400. BTC is now at 96,800. You want to protect the gain but you think there might be another 5-8k of upside before the rally fades.

Buy 90k put for 2,100. Sell 105k call for 2,100. Net cost: 0 (zero-cost collar). 21 days to expiry.

BTC at Expiry
Spot P&L
Put
Call
Total P&L
$75,000
-$18,400
+$15,000
$0
-$3,400
$85,000
-$8,400
+$5,000
$0
-$3,400
$90,000
-$3,400
$0
$0
-$3,400
$93,400
$0
$0
$0
$0
$96,800
+$3,400
$0
$0
+$3,400
$105,000
+$11,600
$0
$0
+$11,600
$120,000
+$26,600
$0
-$15,000
+$11,600

Your P&L is bounded between -3,400 and +11,600 no matter what happens. BTC crashes to 60k? You lose 3,400. BTC rockets to 150k? You make 11,600. The certainty is the product.

Explore the Payoff​

Spot at Expiry$100k
$70k$130k
Net Cost$0k
$0k$5k
BE $100k$0+$10k-$10k$70kK1 $90kK2 $110k$130kSpot Price at ExpiryP&L
Settlement
$100k
P&L
+0.0k
Max Loss
-$10k
Max Gain
+$10k

When to Use​

  • You hold a large position and need to hedge without selling. Maybe you're a validator who can't sell staked ETH, or you have a tax reason to hold through year-end
  • You want downside protection but don't want to pay full put premium out of pocket. The short call handles that
  • You're OK capping your upside in exchange for the certainty of a bounded worst-case
  • You're a treasury or fund that needs to lock in a range for reporting or risk management purposes

Collars are the most common hedge for large crypto holders. DAOs, foundations, early investors, and funds with locked tokens all use collars to bound their exposure without selling. The trade-off is always the same: you give up the moonshot to protect against the crash.

Common Mistakes
The mistakeSetting the call strike too close because you want a 'free' put with a wider put spread.
The realityIf you sell the $98k call to finance the $85k put, you've capped your upside at $1,600 above current spot. BTC moves up 3% and you're already at max profit. The call strike should be at a level where you're genuinely OK exiting. If you'd be angry selling at $98k, don't sell the $98k call.
The mistakePutting on a collar and then getting frustrated when BTC rallies past the call strike.
The realityThis is the most common collar mistake. You hedged. It worked. The cost of the hedge was the upside cap. If you roll the call higher every time BTC approaches it, you're paying for the roll and defeating the purpose of the hedge.
The mistakeIgnoring early exercise/settlement mechanics.
The realityOn Hypercall, options are European-style and cash-settled. You can't get assigned early. But on some venues (especially equity options), the short call can be exercised early. Know your venue's settlement rules before putting on a collar.

Greeks at a Glance​

Greek
Sign
Plain English
Delta
+
Reduced vs naked spot. The long put adds negative delta, the short call subtracts positive delta. Typical collar delta: 0.50-0.70 vs 1.0 for naked spot.
Gamma
~0
Long gamma from put and short gamma from call roughly offset. The collar is gamma-neutral in the middle of the range.
Theta
~0
Put theta cost offset by call theta income. Net theta is near zero for a zero-cost collar.
Vega
~0
Long vega from put, short vega from call. Roughly offsetting. A collar is not a vol trade.

The collar neutralizes most of the Greeks except delta. You still have directional exposure, and it's just bounded. The position behaves like a less-volatile version of holding spot. That's exactly the point.

Related:

  • Protective Put, the put leg, without the short call (more expensive, unlimited upside)
  • Covered Call, the call leg, without the put (income generation, no downside protection)
  • Risk Reversal, collar without the underlying (synthetic directional exposure)
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