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The Collar Strategy: Using Longer-Term Put Expirations

When we add a protective put to our covered call trades the strategy is known as a collar. To reduce the monthly cost of the long put, some investors will consider using longer-term put expirations This article will explore the pros and cons of this approach using Ciena Corp. (NYSE: CIEN).


Collar trade information on 4/21/2020

  • 4/21/2020: CIEN trading at $44.04
  • 4/21/2020: 5/15/2020 $45.00 call has a bid price of $1.52
  • 4/21/2020: 5/15/2020 $42.00 protective put has an ask price of 1.17
  • 4/21/2020: 1/15/2021 $42.00 protective put has an ask price of $6.10


9-month cost of protective put using current option-chain data

  • 1-month expiration: $1.17 x 9 = $10.53 per-share
  • 9-month expiration: $6.10 or $0.68 per-month
  • Difference = $4.43 or a 42.1% discount using the 9-month expiration put


Collar calculations using the 2 monthly put-costs: The BCI Collar Calculator 


CIEN Calculations with the BCI Collar Calculator


  • Red arrow: The 9-month put expiration results in more than doubling the initial returns
  • Blue arrow: The trade with upside potential shows that the 9-month put results in a higher return by 1.12% per month
  • Purple arrow: The maximum loss is better by 1.12% using the 9-month put expiration


Disadvantages of the collar with long-term protective puts

  • Trade success depends on share price remaining in a narrow trading range for 9-months.
  • Our bullish assumption on the underlying security may change
  • Forces us to maneuver through 2 to 3 earnings reports (partially protected by the long put)
  • If share price accelerates significantly, we maximize the covered call trade and lose on the put side. Assignment prior to put expiration may result in a loss.
  • If share price declines below the breakeven, we lose money



Unless we are avoiding ex-dividend dates (may use 2-month expirations) , my preference is to stay with 1-month obligations. Although the monthly cost of the put will be more, having the flexibility to re-assess our bullish assumptions on a regular basis is more important. Avoiding earnings reports is also more valuable than a few percentage points.


Additional collar information


Online DVD Program with downloadable workbook

Collar Calculator


My interview with Nasdaq reporter


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Thanks, and enjoy the weekend.




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About Alan Ellman

Alan Ellman loves options trading so much he has written four top selling books on the topic of selling covered calls, one about put-selling and a sixth book about long-term investing. Alan is a national speaker for The Money Show, The Stock Traders Expo and the American Association of Individual Investors. He also writes financial columns for both US and International publications along with his own award-winning blog.. He is a retired dentist, a personal fitness trainer, successful real estate investor, but he is known mostly for his practical and successful stock option strategies.

13 Responses to “The Collar Strategy: Using Longer-Term Put Expirations”

  1. Tim November 7, 2020 2:22 am

    Good morning Alan! And all the best with the US election results!

    I found my self in this position last week:

    Stock Name: FTCH
    Stock Purchase price: $29.44
    Option Strike Price: $30.00
    Option sale price/share: $2.54

    Current stock price: $41.7
    Current option price/share: $12.65

    I do have two weeks left to monitor the stock price of FTCH…I do hope the price can come down near to strike 30 nearer the expiration date so that i can close the sell call option and perhaps pay back a smaller premium. And continue to hold the stock for longer term investment.

    Would this be a viable strategy, Alan?

    Worst scenario, if the price remains sky-rocketed, i will close both positions on the expiry day with a small profit ($30 – $29.44 + $254 premium collected earlier) and move on from there to other trade.

    Have I missed out on any other options?


    • Alan Ellman November 7, 2020 7:35 am


      You are in a great position. There are 2 position management considerations when share price moves up significantly leaving the strike deep in-the-money:

      1. The “mid-contract unwind exit strategy” which should be implemented when we can generate > 1% greater than the time-value cost-to-close. Use the “Unwind Now” tab of the Elite or Elite-Plus Calculators for these stats.

      2. Rolling the option as expiration nears: Use the Unwind Now” tab to make sure the time-value returns meet our stated goals.

      A third consideration is to take no action if the strike is deep in-the-money and rolling calculations do not align with our goals, then allowing our shares to be sold at the strike price and using the cash after expiration for a new trade with a different security. There is no need to close both legs as it will happen automatically after expiration (on Saturday). This is a positive result in that we have maximized the returns for the near month trade.

      So far, so good with this trade.


      • Tim November 8, 2020 1:12 am

        Tks Alan, for the encouragement!

        1) I guess I’m fixated with my purchase price of $29.44 per share of FTCH and then having to give up at just $30 per share upon expiry. My profit is only $56 + $254 premium collected. If I had not sold the covered call (or the least I could do is to strike at a higher price than 30), my profit would have been greater

        2) I will indeed take a look at the elite calculator I think at the price of $49?

        3) I’ve tried simulated rolling to the following month or next 2 but because it is so deep ITM now, it seems the time value return cannot meet my stated goals

        4) perhaps another possibility while waiting during these two weeks is for the stock price of FTCH to retract and hopefully lesser ITM so that it may be more profitable to close by buying back the option?

        These are just some considerations I have now and even as I journal my learning points and my exchanges with you, Alan. Thanks so much for your willingness to share!


        • Alan Ellman November 8, 2020 6:06 am


          It’s time to enjoy success. Let’s look at how this trade was structured. (See the screenshot below).

          There was an initial time-value return of 8.6% with an additional 1.9% of upside potential resulting in a max 1-month return of 10.5%, 126% annualized. With the $30.00 strike now deep in-the-money, the max result is looking good but not guaranteed.

          The 8.6% initial 1-month return for a near-the-money strike tells us that we are dealing with a high-volatility stock so significant movement is either direction is to be expected.

          Using the “Unwind Now” tab of the Elite or Elite-Plus Calculators shows us that the time-value cost-to-close is 3.2%. Can we generate > 3.2% in the next 2 weeks with a new trade and a different stock? Probably not. If that is our decision, we continue to monitor the trade and re-evaluate if and when the situation changes or deal with rolling choices as expiration approaches.

          The calculators you want to consider are the Elite Calculator or our newest product, the Elite-Plus Calculator. Check out this video before making a decision:

          I wish you many more trades like this one.



          • Roni November 10, 2020 9:41 am

            Alan and Tim,

            FTCH has ER confirmed for 11/12, day after tomorrow, I would be worried.


          • Alan Ellman November 10, 2020 5:51 pm


            Absolutely… a key BCI rule. reporting after market close according to


  2. Barry B November 7, 2020 9:21 pm

    Premium Members,

    This week’s Weekly Stock Screen And Watch List has been uploaded to The Blue Collar Investor Premium Member site and is available for download in the “Reports” section. Look for the report dated 11/06/20.

    Also, be sure to check out the latest BCI Training Videos and “Ask Alan” segments. You can view them at The Blue Collar YouTube Channel. For your convenience, the link to the BCI YouTube Channel is:

    Since we are in Earnings Season, be sure to read Alan’s article, “Constructing Your Covered Call Portfolio During Earnings Season”. You can access it at:

    On the front page of the Weekly Stock Report, we now display the Top 10 ETFs, the Top SPDR Sector Funds, and the 4 single Inverse Index Funds. They are sorted using the 1-month performances from the Wednesday night ETF report and the prices from the weekend close.


    Barry and The Blue Collar Investor Team

    [email protected]

  3. Marsha November 8, 2020 12:19 pm


    With covid, unemployment and the election all coming at once, do you think protective puts is a good idea until these matters settle? I’m having a good year with options but don’t want to risk my profits.


    • Barry B November 8, 2020 2:11 pm


      I use protective puts all of the time…especially in times like this. Consider using Collars. While you may give up a little in premium, you more than make up in being able to sleep at night. As a matter of fact, I’m in a collar trade this month.



  4. Jim November 9, 2020 6:46 pm

    Hello Alan,

    I have been going through your videos, reading your books, and others as well. I am curious to hear from you on the subject of using a 9 or more month out Call as a sub for purchasing the equity, and then selling Calls against that. Certainly, this would be a way to participate in the markets with less cash, in my IRA account, than buying the stock. What are your thoughts, both positive and negative, about using Long deep in the money Calls for selling covered calls?

    Thank you,


  5. Alan Ellman November 10, 2020 5:44 am


    This strategy is called the Poor Man’s Covered Call (PMCC) or a long call diagonal debit spread, technically.

    Frequently, the strategy is promoted as “covered call writing, but cheaper” The truth is that there is a lot more to the strategy than the simplicity implied in that statement. It is critical to master all the moving parts related to the PMCC before deciding if this is the right strategy for you and your family. See the screenshot below for the pros and cons taken from page 105 of our book, “Covered Call Writing Alternative Strategies”

    For more information of the PMCC:






  6. Nigel November 11, 2020 3:30 pm

    Hello Alan,

    I think that now is the time to jump in and collect income.

    However, I have been watching some stocks of which I w
    ant to buy a few blocks and the premium for a one month option changes a bit during the day.

    I have your DVD and I looked everything over, but I’m curious about the timing of options sales where it relates to the changing price of the one month premium.

    Is there a way to time this better? Are there tools for this? Would longer dated options be a better idea?

    Thanks so much!

    • Alan Ellman November 12, 2020 3:57 am


      In the BCI methodology, we focus in on Weekly and Monthly (my preference although I also use Weeklys when beneficial) options. Longer-dated options will result in lower annualized returns and make it more difficult to avoid earnings reports and ex-dividend dates when applicable. We are also reassessing our bullish assumptions on the stocks less frequently.

      Regarding the price movement of options during the course of the trading day, we consider placing our trades between the hours of 11 AM ET and 3 PM ET to avoid early morning and late afternoon market volatility associated with computerized institutional trading. This will solve these concerns.