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One of the most common real-world protective strategies: own the underlying, buy a put for downside insurance, and sell a call to help pay for it. The result is a fully defined-risk position — capped loss, capped gain, often for close to zero net cost.

A Collar combines a Protective Put and a Covered Call on the same underlying holding — buy a put below the current price for insurance, and sell a call above it to collect premium that offsets the put's cost. The name comes from the shape this creates: the position's value is "collared" between the two strikes, unable to move outside that range regardless of how far the underlying itself moves.

This is literally a Covered Call and a Protective Put layered on the same holding — if you've read both of those pages, a Collar is simply doing both at once. The premium collected from the call typically offsets some or most of the cost of the put, sometimes entirely.

Three zones, fully defined on both sides:

1. At or below the put strike — maximum loss, fully capped and flat. The put's gains offset any further stock losses below this point.
2. Between the two strikes — the position moves with the underlying, same as plain stock ownership would, just with the two option premiums netted in.
3. At or above the call strike — maximum profit, fully capped and flat. The call is exercised against you, capping further gains.

A Collar fits a situation where you want to protect an existing holding from a significant fall, but don't want to pay the full cost of a Protective Put alone — selling the call helps fund that insurance, often for close to zero net premium. It's especially common ahead of an uncertain event when a holder wants to stay invested but limit both the downside risk and, in exchange, the upside potential during that period.

Suppose you own Nifty at a cost basis of 24,000, with a weekly expiry coming up, and lot size 65.

1. Confirm the setup. You want downside protection on your Nifty holding without paying much for it.
2. Buy 1 put at the 23,700 strike for a premium of 58.
3. Sell 1 call at the 24,300 strike, collecting a premium of 60.
4. Calculate the net premium: 60 − 58 = 2 points — a small net credit here, since the call happens to bring in slightly more than the put costs.
5. Calculate the max loss: (24,000 − 23,700) − 2 = 298 points, or ₹19,370 at this lot size.
6. Calculate the max profit: (24,300 − 24,000) + 2 = 302 points, or ₹19,630.
7. Calculate the breakeven: 24,000 − 2 = 23,998.
8. See how it resolves at expiry:
   • Nifty finishes at or below 23,700 → capped loss of ₹19,370.
   • Nifty finishes at or above 24,300 → capped profit of ₹19,630.
   • Nifty finishes at 23,998 → you exactly break even.

Quick reference for the same trade:

Rendered using a verified synthetic equivalent for the stock holding, combined with the actual put and call legs — the real capped-both-sides curve, not an approximation. Move the cursor over the chart to see profit/loss at any price.

• Upside is capped, same trade-off a Covered Call has. A sharp rally above the call strike doesn't benefit you beyond the capped maximum.
• Protection only lasts until the options expire — an ongoing collar needs new options as each set expires.
• Requires actually holding the underlying, tying up the capital that position represents.
• Index options on NSE are typically European-style and cash-settled — no early-assignment risk on the short call leg before expiry.