A covered call is arguably the most well-known options position: If you are long a stock or futures contract, you sell a call option (usually out of the money) to generate income. In a bullish or neutral market, this trade could produce consistent gains. However, few traders focus on the strategy’s downside risk: If the underlying tanks, the money you take in from selling the call option won’t help much. An option collar trade solves this dilemma by purchasing put options to protect against loss. A collar is a conservative, flexible strategy that profits if the underlying instrument trades within a certain range by expiration. The strategy’s goal is to improve a long position’s odds of success by adding low-cost downside protection without excessively limiting potential upside profits.