what is a zero cost collar 
a zero cost collar is a form of options collar strategy that limits your losses to execute it you sell a short call option and buy a long put option whose prices cancel each other out the downside of this strategy is that profits are capped if the underlying asset s price increases understanding zero cost collara zero cost collar strategy involves the outlay of money on one half of the strategy which offsets the cost incurred by the other half it is a protective options strategy implemented after your long position in a stock experiences substantial gains to create the position you use a stock you own buy a protective put and sell a covered call other names for this strategy include zero cost options equity risk reversals and hedge wrappers to implement a zero cost collar you buy an out of the money put option making the seller buy the underlying at strike and simultaneously sell an out of the money call option hoping the buyer purchases the underlying at strike with the same expiration date for example imagine you purchased a stock for 100 one month later it was trading at 120 per share you want to lock in some gains so you buy a put option with a 115 strike price at 0 95 and sell a call with a 124 strike price for 0 95 in terms of dollars the put will cost 0 95 x 100 shares per contract 95 00 the call will create a credit of 0 95 x 100 shares per contract the same 95 00 therefore the net cost of this trade is zero and you ve locked in profits using the zero cost collarexecuting this strategy is not always possible as the premiums or prices of the puts and calls do not always match exactly therefore investors can decide how close to a net cost of zero they want to get choosing puts and calls that are out of the money by different amounts can result in a net credit or debit to the account the further out of the money the option the lower its premium therefore to create a collar with only a minimal cost you can choose a call option farther out of the money than the respective put option in the previous example that could be a strike price of 125 to create a collar with a small credit to the account you do the opposite choose a put option farther out of the money than the respective call in the example that could be a strike price of 114 if the collar resulted in a net cost or debit that outlay would reduce the profit on the other hand if the collar resulted in a net credit that amount is added to the total profit at the expiration of the options the maximum loss would be the difference between your purchase price and the value of the stock at the lower strike price even if the underlying stock price fell sharply the maximum gain would be the difference between the purchase price and the value of the stock at the higher strike even if the underlying stock moved up sharply if the stock closed within the strike prices then there would be no effect on its value to you because the options would expire 