Collar or protective put?
LEAPS + collar vs LEAPS + protective put
Both put a floor under a long position. A collar pays for the floor by selling a call and capping the upside; a protective put leaves the upside open and costs a premium.
Expect a strong trend up? Use a protective put: pay for the floor and keep the upside. Expect chop or a slow grind? Use a collar: let the call pay for the put.
Collar
Best for
Sideways or slowly rising markets, and higher IV, when the call you sell pays well.
What you get
A floor for little or no net cost, and the upside capped at the call until you roll it.
Protective put
Best for
Strong trends and low IV, when puts are cheap.
What you get
The same floor with the upside left open, for the put's premium: a steady drag of a few percent a year.
Side by side
| Collar | Protective put | |
|---|---|---|
| Net cost | Near zero: the call pays for the put | The put's premium |
| Upside | Capped at the call until it is rolled | Open |
| Downside | Floor at the put | Floor at the put |
| Best in | Sideways or slow markets, higher IV | Strong trends, low IV |
| Upkeep | Sell calls monthly, roll the put | Roll the put |
| Risk to watch | A fast rally keeps testing the call | Paying for protection that never pays out |
How our backtested versions work
- LEAPS + Collar holds a ~2-year 0.80 Δ LEAPS call, sells a monthly 0.20 Δ call above it and keeps a 0.20 Δ put under it.
- LEAPS + Protective put buys the put only once the LEAPS is up about 10%, and sells a call while waiting, so the floor locks in part of a gain.
Either way
- The floor is only as good as its expiry: a put that runs out leaves you unprotected until you buy the next one.
- Both cut the worst years; how much upside each gives up shows in the year-by-year backtests.
Payoff sketches are at expiry on a $100 stock, for shape only. Education, not advice: disclaimer.