I was reading about the zero cost option collar strategy and was puzzled by the idea that one can find an at-the-money put option for the same price as an out-of-the-money call.

I've looked at the option chain for EURUSD and USDJPY on my trading account (IG) and indeed, given the prices, implementing the zero cost collar seems impossible.

I've opened a demo account with Saxo and checked the option chain there with the same result. What am I missing?


You're not missing anything. Though there are many web sites promoting this idea (with the intention of trying to get you to sign up for their 'advice'), you're not going to find an out-of-the-money call for the same price as an at-the-money put.

As a general rule, no cost collars have to be approximately equidistant on both sides of current price.

There are some situations that affect this modestly:

  • There is Forward Skew or Reverse Skew where the IV of ATM strikes is higher or lower than for OTM strikes

  • Pending dividends increase put premium respective to call premium

  • Higher carry cost increases call premium respective to same series put premium

You can shift the R/R and cost/debit of a collar in either direction with collars that are not equidistant.

FWIW, a long collar is synthetically equivalent to a vertical spread so if executing the 3 legs simultaneously, you may save on commissions and B/A spreads by executing the vertical.

  • Here's one of those web sites with bogus option premiums, resulting in the claim of a risk free collar strategy. If such a thing existed, no one would invest in anything else but this. In reality, the call premium in the example should be about $3 not $5. The explanation is good but the example is ka-ka. theoptionsguide.com/costless-collar.aspx ... if the options used are far enough out (say 2 year LEAPs) and use the right combination of strikes, the collar cost may approach zero but the return will be the cost of carry. – Bob Baerker Feb 14 '19 at 20:59

In addition to what Bob Baerker said, you can get a no-cost collar if you leg into it and the underlying moves favorably. Oftentimes just a few points are required to get the put and call to be the same price.

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