Using the Zero-Dollar Collar to Protect Greatly Appreciated Shares

We can use put options as a hedge against share price decline of our long stock positions. This may be particularly useful after exponential price acceleration, and we want to protect our unrealized gains. This would represent an insurance policy that costs money. The debit for this protection can be partially or totally negated by simultaneously selling covered call options. The 3 components of this trade are collectively known as the collar strategy and when the net debit or credit approaches zero, the trade is known as a zero-dollar collar.

Components of a collar

• Own 100 shares of the underlying security (stock or exchange-traded fund) per contract
• Sell (usually) an out-of-the-money call option
• Buy (usually) an out-of-the-money put option
• The net premium can be a debit, credit or break even

 

What is a zero-dollar collar?

• This is a collar where the premium generated from the call option is equal to or nearly the same as the cost of the put premium resulting in a low-cost or no cost scenario on the option side
• If this can be accomplished, we can then benefit from continued, but limited, share appreciation at little or no cost, while enjoying protection to the downside
• This strategy can be particularly useful for those trading with securities that were purchased at significantly lower prices than current market value

 

A real-life example with NVIDIA Corp. (Nasdaq: NVDA): Calculations with our Trade Management calculator (TMC)

• NVDA trading at $99.07
• Broken red arrow: option credit/debit = $0.00 (red oval), using the $101.00 call (brown cell) and the $97.00 put (yellow cell)
• Brown cells: No option credit or debit
• Purple cell: 1.95% upside potential if share price moves from $99.07 to the $101.00 call strike in this 17-day trade

 

Have our 3 goals been accomplished?

Provide downside protection against a substantial loss in share value

Yes. We are protected against any share depreciation below the $97.00 put strike. We are susceptible to share decline from $99.07 down to the $97.00 strike but no more than that.

Provide an opportunity of limited share appreciation from current market value up to the call strike price

Yes. We retain the potential for share appreciation from $99.07 up to the $101.00 call strike. This would represent a 1.95% 17-day return or an 41.86% annualized return.

Result in a low or no-cost option collar or a zero-dollar collar

Yes. We have an option credit on the call side of $5.80 and also a put debit of $5.80 resulting in a zero-dollar collar.

 

Discussion

For those who have a portfolio consisting of low-cost basis securities the zero-dollar collar may be a useful tool. It is a no-cost way of generating protection against significant loss in share value while at the same time still offering an opportunity for share appreciation.

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Using stocks and stock options to develop a low-risk, wealth-building strategy for retail investors. Selling puts is a strategy similar to, but not precisely the same as, covered call writing. Mastering either strategy is a huge opportunity for retail investors to secure our financial futures. Mastering both will allow us focus in on the best investment choices depending on market conditions and personal risk tolerance.

The purpose of this book is to give the reader the tools to master a conservative stock and option strategy with the goals of generating monthly cash flow and focusing in on capital preservation. Selling cash-secured puts is a low-risk strategy that leverages high-quality stocks and exchange-traded funds to accomplish these objectives.

Click here to learn more.

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Your generous testimonials

Over the years, the BCI community has been incredibly gracious by sending our BCI team email testimonials sharing stories as to what our educational content has meant to their families. Moving forward, we have decided to publish several of these testimonials in our blog articles. We will never use a last name unless given permission:

Upcoming events

1.Mad Hedge Investor Summit

Tuesday September 9, 2025

11 AM ET

Details to follow.

2. BCI Educational Series Webinar # 8: New Credit Spread Calculator

Thursday September 18,2025

8 PM ET – 9:30 PM ET

Over the past 2 years, BCI has been developing and beta-testing a 1-of-a-kind spreadsheet for entering and adjusting our credit spread trades. Like our Trade Management Calculator (TMC), our goal was to make it the industry standard. Only you can decide if we accomplished our mission.

Alan & Barry will introduce this product, review all the tabs inherent in the spreadsheet and demonstrate how to use it. A 1-time early order discount will also be offered.

For those who trade, or are interested in learning how to trade, credit spreads, this is a must-see webinar.

Click here to register for free.

3. Orlando Money Show

Orlando Resort @ ChampionsGate

October 16 – 18, 2025

• Opening ceremony keynote address
• 45-minute workshop class: Traditional & Low-Risk Covered Call & Cash-Secured Put Trades

Details and registration link to follow.

4. Money Masters Symposium Sarasota Florida

December 1 – 3,2025

Setting Up Option Portfolios Using Stock Selection, Diversification, Cash Allocation and Calculations

Analysis of 6 covered call writing trades

Minimize risk and maximize returns. These are our 2 main goals when crafting our option portfolios. There are several factors we can utilize which will put ourselves in an outstanding position to achieve these objectives. Here is a summary of those factors which will be addressed during this presentation:

• Select elite-performing stocks and ETFs
• Diversity stock positions as well as their industries
• Allocate a similar amount of cash per-position
• Ensure that initial calculations align with strategy goals and personal risk-tolerance
• Once trades are entered, go into position management mode- be prepared for exit strategy opportunities

Registration link to follow.