Protecting your core stocks: practical illustrations across five names

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Introduction

This article builds on our earlier educational materials about using options to manage risk. The focus here is simple, practical examples showing how different collar structures can shape the risk profile of widely held names.

Before we begin: A collar combines a long put with a short call on an existing share position. The examples below assume ownership of the underlying shares and are presented for illustration only. Credits and debits shown are per share (multiply by 100 for one standard contract).

Collars are often used by long‑term investors as a way to illustrate a defined range of potential outcomes during periods of sharp market swings. Instead of reacting to volatility, a collar sets two predefined option strikes — a cap and a floor — which help outline how the potential range of outcomes may change for a given holding.

The concept can sound like “options theory,” but in practice a collar behaves more like a risk‑management overlay: the short call brings in premium, the long put provides protection, and together they reshape the return profile of widely held names such as the ones we focus on today — SPY (US large‑cap equity market), QQQ (US technology‑heavy Nasdaq exposure), NVO (global healthcare and obesity‑treatment leader), AMD (semiconductors and AI computing) and ASML (critical supplier to the global chip industry).

This article keeps things practical. We present two collar examples per ticker, across two common monthly expiries, to demonstrate how different combinations of caps and floors can shape risk.

Important note: The strategies and examples provided in this article are purely for educational purposes. They are intended to assist in shaping your thought process and should not be replicated or implemented without careful consideration. Every investor or trader must conduct their own due diligence and take into account their unique financial situation, risk tolerance, and investment objectives before making any decisions. Remember, investing in the stock market carries risk, and it's crucial to make informed decisions.

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What we are presenting

To keep things simple, we highlight only the essentials:

• Two expiries: December 2025 and March 2026 — liquid, widely used, and commonly referenced for portfolio‑level hedging.
• Two collar types:
  • Balanced: cost‑efficient protection with some upside left.
  • Protective: a more defensive structure for investors who prefer a lower protection strike.
• Clear, comparable layout: each row shows the cap (short call), the floor (long put), the net credit/debit and the days to expiry.

The goal is straightforward: a small, easy‑to‑compare set of examples that highlights how protection levels differ across expiries.

The context column shows days‑to‑expiry for both horizons, calculated from publication date.

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The quick‑picker table

Use the table below to compare how different caps and floors vary across tickers. Credits/debits are shown per share (multiply by 100 for one standard options contract). “Balanced” emphasises cost efficiency with moderate upside participation; “Protective” prioritises a tighter floor and accepts a smaller cap or a modest debit.

Prices shown are indicative and based on available data. They are gross figures, not accounting for fees, commissions, taxes or other transaction costs.

Reading the quick‑picker table

• Each cell lists the strike pair as short‑call / long‑put, followed by net credit/debit (per share; multiply by 100 for one standard contract).
• The context column shows the days‑to‑expiry for both horizons so you can align with review cycles and capital plans.
• Implementation is one‑ticket in most platforms, but we recommend checking live quotes and spreads at placement.

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Management playbook

• If spot rallies into the cap: some investors roll the short call up and out when spot approaches the cap, which can help maintain the structure’s shape.
• If spot falls near the floor: some investors roll the long put down and out when spot approaches the floor, or adjust the position if volatility increases.
• Mid‑cycle adjustments: periodic reviews are common, with some investors monitoring how call and put strikes compare with their original parameters.

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Risks and considerations

For readers who want to understand how these collars were systematically chosen, an overview of the selection framework is included in the addendum at the end of this article.

• Collars cap upside. In strong uptrends, the cap can become the dominant driver of P&L.
• Option pricing is sensitive to implied volatility and skew. A rapid vol crush after a shock can reduce put value faster than expected.
• Liquidity varies by ticker and expiry; use limit orders and avoid chasing illiquid strikes.
• Taxes, borrowing costs and corporate actions may affect outcomes; assess suitability to your situation.

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What to watch

• Macro: path of policy rates, labour data, earnings revisions.
• Volatility: term structure (contango vs backwardation) and skew for the chosen expiries.
• Ticker catalysts: earnings dates, regulatory headlines (notably for NVO and ASML), product launches and competitive dynamics.

Important note: The strategies and examples provided in this article are purely for educational purposes. They are intended to assist in shaping your thought process and should not be replicated or implemented without careful consideration. Every investor or trader must conduct their own due diligence and take into account their unique financial situation, risk tolerance, and investment objectives before making any decisions. Remember, investing in the stock market carries risk, and it's crucial to make informed decisions.

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Addendum: Selection framework (summary)

The collar selection method is applied consistently across all tickers and expiries:

1. Signal‑agnostic: Focused on protection and consistency rather than directional calls.
2. Short call (cap):
• Balanced: ~20–30 delta for moderate participation.
• Protective: ~15–20 delta to help finance a stronger floor.
3. Long put (floor):
• Balanced: ~20–25 delta for efficient skew.
• Protective: ~25–35 delta for tighter protection.
4. Credit/debit preference:
• Balanced leans toward small credit or flat cost.
• Protective accepts a modest debit if it materially improves the floor.
5. Liquidity and granularity: Preference for round strikes with clear open interest and stable spreads.

This framework supports a disciplined, repeatable selection process across SPY, QQQ, NVO, AMD and ASML.