How do I set up a protective collar on IBKR?
IBKR offers five methods for establishing a protective collar:
Method 1 - Write Options Tool:
- Click New Window in the top left corner of Mosaic
- Select Advanced Option Tools then Write Options
- Select options to buy protective puts and write covered calls simultaneously
- Click Refresh to update parameters
- Review or modify strike prices and expiration dates using the pencil icon
Method 2 - Combination Orders:
Enter all three components as a single order:
- Sell 1 XYZ call + Buy 1 XYZ put + Buy 100 shares of XYZ
Example:
- Buy 100 shares of XYZ
- Buy 1 XYZ APR 17 '14 185 PUT
- Sell 1 XYZ APR 17 '14 190 CALL
Method 3 - Strategy Builder in Option Chain:
- Right-click on a stock position and select New Window > Option Chain
- In the Strategy Builder section, click the Strategies dropdown
- Select Protective Collar
- TWS will automatically scan and generate collar strategies based on your position
- Review the suggested strikes, premiums, and risk/reward profiles
- Click to transmit the strategy
Method 4 - Option Strategy Lab:
- Go to New Window > Advanced Option Tools > Option Strategy Lab
- Click Edit Scanner
- Select the Protect Position button
- TWS will generate protective collar combinations using the backend strategy scanner
- Filter and sort by criteria like net cost, protection level, or upside potential
- Preview P&L scenarios before transmitting
Method 5 - Manual Construction:
- From your stock position, right-click and select Financial Instrument > Options
- Manually select:
- Buy a put option below current price
- Sell a call option above current price
- Use Preview to verify the combined strategy before submitting
How are strike prices and expiration dates selected?
Strike Prices:
- Put strike: Positioned below the current stock price
- Call strike: Positioned above the current stock price
- The spread between strikes determines the range of potential outcomes
Expiration Dates:
- Both options typically have the same expiration date
- Positions can be adjusted by closing existing options and opening new ones
Can a collar be created on stock already owned?
Yes. A collar can be established on existing stock positions by buying the put and selling the call against shares already held.
What platform tools are available?
IBKR provides:
- Risk analysis tools: Profit/loss diagrams showing potential outcomes at various stock prices
- Price alerts: Notifications based on stock price or specific conditions
- Preview functionality: Review all parameters before execution
- Adjustment capabilities: Ability to modify strike prices or expiration dates
How are dividends and assignment handled?
Dividends:
Dividends are received on the underlying stock while the collar is in place (unless the stock is assigned). Upcoming dividends increase the likelihood of early assignment on short calls.
Assignment:
| Stock Price Position | Outcome |
| Above call strike | Stock may be assigned (called away) at the call strike price |
| Below put strike | The put can be exercised to sell at the put strike price |
| Between strikes | Both options expire worthless and the stock position remains |
What costs are involved?
Costs include:
- Commissions on each transaction leg
- Bid-ask spreads on both options
- The net premium (put cost minus call premium received)
The IBKR platform displays total costs before trade execution.
Important Disclaimer: Options trading involves significant risk and is not suitable for all investors. The information provided is for educational purposes only and does not constitute investment advice. Consult with a financial advisor to determine if this strategy is appropriate for your investment objectives and risk tolerance. Consult with a tax professional regarding potential tax implications.