Credit spreads
Collar
Hold the index, buy a put for protection, and sell a call to pay for it.
How it works
A protective put whose cost is met by giving up the upside above a chosen strike. Depending on where the strikes sit it can be opened for nothing, or even for a small credit. It converts an open-ended holding into a defined band.
What it costs you when you are wrong
Both ends are given away: the loss is floored but the gain is capped, and in a strong rally the capped side is the one that hurts. The band can also be narrower than it looks once the cost of rolling it every cycle is counted.
The position
- 1Buy the put 2 strikes out of the money
- 2Sell the call 2 strikes out of the money
- Enter
- 6 trading days before expiry
- Exit
- hold to expiry
- Legs
- 2
Test it yourself
This runs against real historical market data. Nothing is uploaded, nothing is stored, and the result is not a prediction — it is what this rule would have done, on that index, in that year, with the costs shown.