The Collar Option

Most individuals trading stocks or options have heard of covered calls. Covered calls are often touted as a great way to make income against your stock portfolio. The problem associated with covered calls, however, is that all of your good stocks are called away while the crappy ones are left in your portfolio. A little bit of premium income is little consolation when your stock drops 50% because of a bad earnings report. In other words, your upside is limited while you retain most of the downside risk.