258  •   The Intelligent Option Investor
plan like this in place will allow you to size and time your hedges appropri-
ately and will help you to make the most out of whatever temporary crisis 
might come your way.
2
Now that you have a good understanding of protective puts and 
hedging, let’s turn to the last overlay strategy—the collar.
Collar
Contingent Exposure
Contingent Exposure
Contingent Exposure
GREEN
LIGHT GREEN
LIGHT ORANGE
LIGHT RED
ORANGE
RED
Downside: Irrelevant
Upside: Undervalued
Execute: Sell a call option on a stock or index that you own and on 
which you have a gain, and use the proceeds from the call 
sale to buy an OTM put 
Risk: Flexible, depending on selection of strikes
Reward: Limited to level of sold call strike
Margin: None because the long position in the hedged security 
serves as collateral for the sold call option, and the OTM 
put option is purchased, so it does not require margining