Zero-cost futures collar
A collar puts long futures inside a band. Each month this strategy buys one lot of NIFTY futures, buys a put about 1% below the futures price as a floor, and sells a call whose premium matches the put, so the protection costs roughly nothing. The position is held to the monthly expiry and then rolled into the next series. The trade-off is a capped upside in exchange for a capped downside.How it trades
Results
PRE-BUILT · DEFAULTSWhere it made and lost money
With 13 monthly trades, no condition has enough trades to judge. The pattern is still clear: the four months in which NIFTY rose more than 1% made ₹32,719, while the five months within 1% lost ₹63,446 and the three that fell more than 1% lost ₹50,355, with no winners in either group. A falling month runs into the put's floor, but in a flat month the collar still lost, because the long future's premium over spot shrinks to nothing by expiry and the put sits about 1% below the entry, so modest dips cost up to that floor while the sold call caps the rallies.
About this strategy
- On the first trading day of each monthly futures series, at 09:20, buy one lot of the near-month NIFTY future.
- On the same month's options, buy the put at the first strike at least 1% below the futures price.
- Sell the call above the futures price whose premium is closest to the put's, so the net option cost is close to zero. An alternative mode sells a call a set percentage out of the money instead.
- No stop loss: the put acts as the floor.
- At 15:15 on the monthly expiry day (the last Tuesday), close all three legs.
- Open a fresh collar on the first session of the next series, so one expiry night a month is spent flat.
Why traders use it
Holding long index futures exposes a trader to an unlimited fall. Buying a put caps that, but costs premium every month. Selling a call against the position funds the put, giving a 'zero-cost' fence around the futures: the loss is limited to a little over the put distance and the gain to the call distance. It is popular with traders who want long exposure to NIFTY but cannot afford an open-ended drawdown, and with those moving from cash equities into futures.
The year in plain words
On NIFTY from 1 Oct 2025 to 30 Sep 2026 with default settings, the collar was rolled through 13 monthly positions (the last opened in late September) and only 3 made money. It lost ₹80,508 before costs and ₹86,774 after ₹20 per order and bid-ask slippage, with a maximum drawdown of ₹1,00,519 before costs. The band showed clearly in the numbers: the best month made ₹19,436 and the worst lost ₹19,796, with losses of about ₹16,000 to ₹17,000 recurring in November, December, January, March, May and September. Only October and April gained meaningfully. In this period the capped upside rarely paid, and the floor was reached often.
What the settings do
Risks
- The loss in a falling month is capped near the put distance, but that cap was reached repeatedly, about ₹16,000 to ₹20,000 per lot each time.
- The sold call caps gains, so strong rallies earn much less than an unhedged future.
- Futures trade at a premium to spot that shrinks to zero by expiry, a cost the long position pays every month.
- Three legs and a monthly roll mean margin for futures plus a short call, and one night a month without a position.
Who it suits
Traders who want ongoing long NIFTY exposure with a known monthly worst case, and who accept giving up big rallies for that. It needs futures and options margin and patience through runs of losing months.
Questions traders ask
What is a zero-cost collar?
It is a long position protected by a bought put and financed by a sold call of about the same premium. The put sets a floor under the position and the call sets a ceiling, so the trader pays little or nothing for the protection but gives up gains above the call strike.
Is a zero-cost collar on NIFTY futures profitable?
Not in this backtest. From 1 Oct 2025 to 30 Sep 2026 it lost ₹80,508 before costs and ₹86,774 after ₹20 per order and bid-ask slippage, winning only 3 of 13 monthly trades. Statutory charges were excluded. Past results do not guarantee future ones.
Why did the collar lose money in flat months?
A long future bought at the start of the series carries a premium over spot that disappears by expiry, and the put floor is about 1% below the entry. In a month where NIFTY ends a little lower, the position can lose most of that 1% without the put paying out much, and the sold call adds nothing when the market does not rally.
How is a collar different from a covered call?
A covered call is long futures plus a sold call: it earns premium but the downside is fully open. A collar adds a bought put, paid for by the call premium, which limits the downside. The upside is capped in both cases.