Learn collar strategy

5.4.12 · Stock-Market › Options Strategies

HOW the payoff is built — derivation from scratch

Chalte hain total payoff expiry $S_{T}$ par leg by leg build karte hain. Maan lo $S_{0}$ = stock ka purchase price, $P$ = put premium paid, $C$ = call premium received.

Net premium paid up front: $N = P - C$ (negative hoga agar tumne pay karne se zyada collect kiya).

Leg 1 — Long stock. Tumne $S_{0}$ par kharida, ab worth hai $S_{T}$ : $Stock P&L = S_{T} - S_{0}$

Leg 2 — Long put, strike $K_{p}$ . Ek put expiry par $max (K_{p} - S_{T}, 0)$ pay karta hai: $Put P&L = max (K_{p} - S_{T}, 0) - P$ Yeh step kyun? Put ki value tab hoti hai jab $S_{T} < K_{p}$ ; us se neeche yeh difference pay karta hai. Tum pehle hi $P$ chuka chuke ho.

Leg 3 — Short call, strike $K_{c}$ . Tumne ise becha tha, toh tum $C$ rakhte ho lekin $max (S_{T} - K_{c}, 0)$ owe karte ho: $Call P&L = C - max (S_{T} - K_{c}, 0)$ Yeh step kyun? Agar stock $K_{c}$ ke upar close ho, toh buyer exercise karta hai aur tumhe $K_{c}$ par deliver karna padta hai, $S_{T} - K_{c}$ ka loss hota hai.

Total payoff — sab add karo: $Π (S_{T}) = (S_{T} - S_{0}) + max (K_{p} - S_{T}, 0) - max (S_{T} - K_{c}, 0) - (P - C)$

Worked Examples

Common Mistakes

Recall

Recall Active recall (hide and answer)

Collar ke teen legs kya hain? → long stock, long OTM put, short OTM call.
Max loss ka formula? → $K_{p} - S_{0} - N$ .
Max profit ka formula? → $K_{c} - S_{0} - N$ .
Breakeven kahan hai? → $S_{T} = S_{0} + N$ .
Ise "zero-cost" kya banata hai? → call premium ≈ put premium taaki $N \approx 0$ .

Recall Feynman: explain to a 12-year-old

Tumhare paas ek bike hai jo tum baad mein bech sakte ho. Tumhe darr hai ki woh scratch ho jaayegi aur value kho degi, toh tum ek dost ko thode paise dete ho ek promise ke liye: "Agar yeh ₹95 se neeche aaye, toh tum ise mujhse ₹95 mein khareed lo." Yeh hai put — ek safety net. Lekin tum apni pocket se pay nahi karna chahte, toh tum ek aur deal karte ho: "Agar koi ₹108 se zyada offer kare, toh mein tumhe ₹108 par bech dunga, aur tum mujhe abhi pay karo." Yeh hai call. Toh tum zyada nahi lose kar sakte (safety net at 95) aur zyada nahi win kar sakte (tumhe 108 par bechna padega), lekin safety almost free mili. Woh fenced-in range hi hai collar.

Connections

Protective Put — collar ek protective put hai plus ise fund karne ke liye ek call bechna.
Covered Call — collar ek covered call hai plus downside safety ke liye ek put khareedna.
Options Payoff Diagrams — flat-slope-flat shape iska visual signature hai.
Zero-Cost Structures — ek option ko doosra bech kar fund karne ka general idea.
Put-Call Parity — explain karta hai ki call aur put premia collar ki cost se kaise relate karte hain.
Risk Reversal — underlying stock ke bina ek collar sirf short put + long call hai (ya reverse).

Collar strategy ke teen legs kya hain?

Long 100 shares, long 1 OTM put (floor), short 1 OTM call (ceiling).

Collar mein call kyun bechte hain?

Premium collect karne ke liye jo protective put ko finance (pay) kare, ideally ise zero-cost banaye.

Collar max profit formula?

K_{c} - S_{0} - N

, jahan

N = P - C

net premium paid hai.

Collar max loss formula?

K_{p} - S_{0} - N

(put strike dwara set floor).

Collar breakeven price at expiry?

S_{T} = S_{0} + N

"Zero-cost collar" ka kya matlab hai aur kaunsa risk baki rehta hai?

Call premium ≈ put premium toh net premium ≈ 0; tum abhi bhi

S_{0}

K_{p}

tak loss risk karte ho (the deductible).

Call strike

K_{c}

ke upar, collar P&L kaisa behave karta hai?

Yeh flatten ho jaata hai — profit cap ho jaata hai, kyunki short call loss further stock gains ko cancel kar deta hai.

Put strike

K_{p}

ke neeche, collar P&L kaisa behave karta hai?

Yeh flatten ho jaata hai — loss long put dwara floored hota hai.

Collar ek protective put plus kya hai?

Ek short (covered) call jo put ko fund karne ke liye becha gaya.

WHAT is a Collar?

WHY do traders build it?