A protective collar protects a concentrated stock position by buying a put option for downside protection and selling a call option to offset the put’s cost. A “zero-cost collar” balances the put’s cost with the call premium, giving you free downside protection but capping your upside. Watch for constructive-sale rules under IRC Section 1259, which can trigger a taxable event. Collars are especially useful for insiders restricted from selling by 10b5-1 plans or blackout periods. If you hold a large single-stock position, a collar can manage risk while you work toward diversification.
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