Collar Cost Calculator
A collar is a three-part strategy used to protect a stock position from large losses while limiting upside at the same time. The investor already owns shares, buys a put option to create a downside floor, and sells a call option to generate premium income that offsets the put cost. The net cost is the put premium minus the call premium received. If the call premium fully covers the put cost, the collar is "zero cost." This calculator takes the current stock price, put strike and premium, call strike and premium, and cost basis to compute the net collar cost, the effective downside protection floor, the effective upside cap, and the maximum potential gain and loss per share within the collar.
Collar cost formula
Net Collar Cost = put premium - call premium received
Effective Floor = put strike - net collar cost
Effective Cap = call strike - net collar cost
Max Gain = effective cap - cost basis
Max Loss = cost basis - effective floor
A negative net collar cost (call premium exceeds put cost) means the investor is paid to enter the hedge, improving the floor and cap by the overage amount. Max gain and max loss are measured relative to the original cost basis of the shares.
Collar strategy considerations
- A zero-cost collar pairs an out-of-the-money put and call so that the call premium exactly offsets the put cost, providing free downside protection.
- Collars lock in gains on appreciated positions while deferring capital gains tax until the shares are sold (consult a tax adviser).
- The width of the collar (distance between put and call strikes) determines the range of acceptable outcomes.
- Collar adjustments: as the stock price moves, the collar can be rolled to higher strikes (if the stock rises) or adjusted to provide better protection.
- Standard contracts cover 100 shares: multiply per-share figures by 100 and by the number of contracts for total dollar amounts.
Frequently asked questions
What is a collar strategy?
A collar involves owning a stock, buying a protective put (downside protection), and selling a covered call (upside cap). The call premium received helps offset the cost of the put, creating a low-cost or even zero-cost hedge on existing stock holdings.
What is the net cost of a collar?
Net collar cost = put premium paid - call premium received. A positive net cost means you paid net premium (put is more expensive than the call). A zero or negative net cost (called a 'zero-cost collar') means the call premium fully or more than offsets the put cost.
What is the effective downside protection of a collar?
The put strike price provides the floor: if the stock falls below the put strike, losses on the stock are offset by gains on the put. Effective floor = put strike - net collar cost (the net cost reduces the protection level slightly).
What is the upside cap on a collar?
The call strike price is the ceiling: if the stock rises above the call strike, gains are capped because the shares are called away. Effective cap = call strike - net collar cost.
Who uses collar strategies?
Collars are used by investors who have large concentrated stock positions (e.g. founders, executives with company stock) and want to protect against downside while reducing the cost of hedging by sacrificing some upside. They are also used before periods of uncertainty.
Official sources
- Options Clearing Corporation: theocc.com.
- CBOE Options Institute: cboe.com/education.
- SEC Investor Education: sec.gov/investor.
Reviewed by the CalculatorHub team, edited by James Graham, 15 June 2026. See our methodology.