Combines a protective put with a covered call. You buy a put for downside protection and sell a call to help pay for it. This creates a 'collar' around your stock — a defined range of outcomes. Often done at zero cost if the call premium offsets the put premium.
Limited to: Call Strike - Stock Price + Net Credit/Debit
Limited to: Stock Price - Put Strike + Net Credit/Debit
Varies based on net premium
Long 100 shares + Long 1 OTM Put + Short 1 OTM Call
Both profit and loss are limited. Defined range outcome.
When you want downside protection but want to reduce or eliminate the cost. When you're willing to cap upside to pay for the insurance. Popular before earnings or major events.