Collar option strategy
Collar holds a long future, buys an OTM Put for protection and sells an OTM Call to pay for it. Both the loss and the gain are bounded between the two strikes.
Payoff at expiry
Nifty, lot size 65 · Nifty future 25,151 · 23 Nov 2026Legs
| Action | Option | Strike | Lots | Qty | Premium |
|---|---|---|---|---|---|
| BUY | Future | – | 1 | 65 | 25,151 |
| BUY | OTM Put | 25,100 | 1 | 65 | ₹177.02 |
| SELL | OTM Call | 25,200 | 1 | 65 | ₹178.25 |
How it works
- Buy 1 lot of the future at 25,151.
- Buy 1 OTM put at the 25,100 strike for ₹177.02, paying the premium.
- Sell 1 OTM call at the 25,200 strike for ₹178.25, collecting the premium.
- You receive a net ₹80 upfront for the position. Your maximum profit is ₹3,271.
Below 25,150 you lose, up to ₹3,229.
Above 25,150 you profit, up to ₹3,271.
Set-up: Buy 1 lot Future, Buy 1 lot OTM Put and Sell 1 lot OTM Call with same expiration date.
What happens if Nifty moves
Profit or loss at expiry| Nifty at expiry | Move | Profit / loss |
|---|---|---|
| 23,650 | −6% | −₹3,229 |
| 24,400 | −3% | −₹3,229 |
| 24,900 | −1% | −₹3,229 |
| 25,150 | Unchanged | +₹21 |
| 25,400 | +1% | +₹3,271 |
| 25,900 | +3% | +₹3,271 |
| 26,650 | +6% | +₹3,271 |
How the Greeks affect it
When to use
When you are holding a bullish position and want low-cost protection, accepting a cap on the upside.
- Protection at little or no cost.
- Defined risk and reward.
- Suitable for protecting gains.
Things to watch
- Upside is capped at the call strike.
- Three legs to manage.
- Needs margin for the future.
Collar: backtested on NSE data
Real backtests of this structure on NSE data, each with its exact rules, a year of results before and after costs, and where it made and lost money.
- Zero-cost futures collar13 trades
Collar: questions
What is a Collar strategy?
Collar holds a long future, buys an OTM Put for protection and sells an OTM Call to pay for it. Both the loss and the gain are bounded between the two strikes.
When should you use a Collar?
When you are holding a bullish position and want low-cost protection, accepting a cap on the upside.
How do you set up a Collar?
Buy 1 lot Future, Buy 1 lot OTM Put and Sell 1 lot OTM Call with same expiration date.
What is the maximum profit of a Collar?
Limited to the call strike less the futures price plus or minus the net premium.
What is the maximum loss of a Collar?
Limited to the futures price less the put strike plus or minus the net premium.
What is the breakeven of a Collar?
With Nifty at 25,151, the example on this page breaks even at 25,150 at expiry.