how does a collar protect against losses 
the downside put places a floor below the stock price limiting losses to the difference between the put strike price and the original stock price minus the premium received for the call the put strike is selected based on the level of downside protection desired meanwhile the short reduces the cost of the strategy but caps the upside potential as the gains in the existing shares will be offset by equivalent losses in that call option can a collar strategy be modified before expiration yes a collar strategy can be adjusted or unwound before the expiration of the options if the outlook on the stock changes you can buy back the call option and sell the put option however these adjustments might come at a cost and will change the overall profitability of the strategy it s essential to carefully monitor options positions especially in volatile markets the bottom linea collar is a defensive options strategy used to protect against downside losses while limiting upside gains investors and traders can use collar options for interest rate risks as well as losses from holding a long position on a stock it is essentially the combination of a protective put with a covered call to perform the strategy you would already own a stock and be moderately bullish about its price outlook you would then buy a downside put and sell an upside call effectively collaring the position between the two strike prices if the stock drops the put creates a floor preventing further losses while the short call provides some additional income to offset the initial cost of the put if the stock rises the put expires worthless and the short call will limit further upside beyond its strike price plus any net credit received for selling it 