How Does a ‘Collar’ Strategy Use Both Options and the Underlying Asset?
A collar strategy is an options strategy used to protect a long position in an underlying asset, like a cryptocurrency. It involves holding the asset, buying an out-of-the-money (OTM) put option, and simultaneously selling an OTM call option.
The put option sets a floor, limiting potential losses below a certain price. The sold call option generates premium to offset the cost of the put, but it also caps the potential profit.
This creates a risk-reward band.
Glossar
Sold Call Option
Exposure ⎊ The sale of a call option on a cryptocurrency asset represents a directional strategy predicated on an expectation of price stagnation or decline.
Collar Strategy
Containment ⎊ : This strategy establishes a defined floor and ceiling for the valuation of an underlying crypto asset position.
Call Option
Upside ⎊ Acquiring a Call Option provides leveraged upside participation in the appreciation of a specific cryptocurrency asset.
Collar
Framework ⎊ Options collars, within cryptocurrency derivatives and financial engineering, represent a neutral strategy constructed from a protective put and a covered call, designed to limit both potential gains and losses around a specific underlying asset price.