###### The Collar Spread strategy is similar to the Covered Call trade, except an investor will purchase an OTM put to protect against a sudden decline on the stock. Like the Covered Call, the Collar Spread strategy is a neutral to bullish strategy. In Collar Spreads, an investor will buy shares of stock and then sell an ATM or OTM call against those shares, just like a Covered Call trade. Then, the investor will purchase an OTM put. The primary risk in a covered call strategy is that the underlying stock may decline faster than we can collect premium. By purchasing an OTM put option we can protect the position from a large drastic decline in the stock price. The covered call sale helps finance the purchase of the put option. Since the loss in the stock price is limited by the put, a maximum loss can be calculated. The net credit and maximum risk are presented in the Search Results.
 Example: Buy stock XYZ at \$44.92 per share. Write (Sell) the OCT 45 Call at \$4.00 Buy the OCT 35 Put at \$0.85 (for downside protection) Net Credit = Call Bid Premium - Put Asked Premium = \$3.15 % if Not Assigned = Net Credit ÷ Stock Price = 7.0% % If Assigned = (Net Credit + Stock Profit/Loss) ÷ (Stock Price - Net Credit) = 7.7% Max. Risk = Stock Price - Put Strike - Net Credit = \$6.77 % Max. Risk = Max Risk ÷ (Stock Price - Net Credit) = 16.2% Max. Profit = Net Credit + Stock Profit/Loss = 3.15 + 0.08 = \$3.23 Break Even = Purch. Price of Stock - Net Credit = \$41.77

 As a comparison, let us look at the risk-reward ratios of trading the 45 Call but purchasing the 40 Put on the same stock: Example: Buy stock XYZ at \$44.92 per share. Write (Sell) the OCT 45 Call at \$4.00 Buy the OCT 40 Put at \$2.00 (for downside protection) Net Credit = Call Bid Premium - Put Asked Premium = \$2.00 % if Not Assigned = Net Credit ÷ Stock Price = 4.5% % If Assigned = (Net Credit + Stock Profit/Loss) ÷ (Stock Price - Net Credit) = 4.9% Max. Risk = Stock Price - Put Strike - Net Credit = \$2.92 % Max. Risk = Max Risk ÷ (Stock Price - Net Credit) = 6.8% Max. Profit = Net Credit + Stock Profit/Loss = 2.00 + 0.08 = \$2.08 Break Even = Purch. Price of Stock - Net Credit = \$42.92