3. Collar
(See Random Walk’s text Stock, Options & Collars)
The collar position is a combination of a covered call and the married put. The above illustration showed how we bought the 120 strike protective put for $2.44 ($244 per contract), known as the “married put.” By selling the 130 call (covered call) at $2.66 ($266 per contract) at the same time as buying the put, the cost of the put insurance is offset resulting in a small $0.22 credit.
The combined position ends up looking like a vertical spread on a profit-and-loss graph as seen below.
