What Is Collar?
A collar is an options strategy that protects an existing long position by simultaneously buying a protective put (downside protection) and selling a covered call (upside cap). The premium received from selling the call partially or fully offsets the cost of the put, making the hedge cheaper or even free (zero-cost collar).
How Collar Works
Example: You hold 1 BTC at $50,000. Buy a $45,000 put (protection below $45K) and sell a $60,000 call (capping gains above $60K). The put premium might cost $1,500 and the call premium received might be $1,000 — net cost of protection is only $500. Your outcome range is $45,000 to $60,000 regardless of what happens to BTC.
Why It Matters for Traders
Collars are ideal for crypto holders who want to protect against major drawdowns during uncertain periods (FOMC, regulatory events, cycle tops) without fully exiting their position. The trade-off — giving up upside beyond the call strike — is acceptable when the primary goal is capital preservation. Zero-cost collars are particularly attractive: complete downside protection financed by giving up some upside, at no net cost.
