How Is the Maximum Loss Calculated for the Underlying Asset in a Collar?
The maximum loss in a collar is calculated as the underlying asset's initial purchase price minus the put option's strike price, plus or minus the net premium paid or received. The put strike price acts as the floor.
The net premium is the cost of the put minus the premium from the call. This calculation determines the worst-case scenario loss at expiration.
Glossar
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.
Maximum Loss
Value ⎊ Maximum Loss represents the absolute worst-case financial outcome, expressed as a specific monetary value, that a derivatives position can incur over its entire life cycle.