If you’re holding highly appreciated shares and want to protect those gains without selling them, the zero-dollar collar options strategy offers a practical and cost-effective solution. This strategy has surged in popularity among seasoned investors in 2025, allowing them to lock in profits and manage risk—while avoiding hefty taxes or triggering a sale.
A zero-dollar collar involves pairing a protective put with the sale of a covered call on the same stock. Essentially, you buy a put option below the current share price (to limit downside loss) and sell a call option above the current price (to generate premium income that offsets the cost of the put). The premiums typically balance out, resulting in a net cost of nearly zero—hence the name, zero-dollar collar.
Here’s how it works in practice: Suppose you’ve held stock in a rapidly appreciating company. By purchasing a put option with a strike price below the current level, you create a safety net should the stock decline. Simultaneously, you sell a call option at a strike above your current price, agreeing to potentially sell if the price moves higher. The income from selling the call helps finance the put, capping both your downside and upside, but at little to no out-of-pocket cost.
The strategy is especially appealing for investors who want to defer capital gains taxes or keep riding longer-term trends while minimizing the risk of a steep pullback. It’s also effective when market volatility rises, further driving up option premiums for call sellers. However, it’s important to remember that upside potential gets limited—the collar’s structure means you might have to sell your shares if the price soars beyond the call strike price before expiration.
In 2025, with record-setting stock gains across various sectors, utilizing the zero-dollar collar can be a powerful tool for managing risk and protecting portfolio appreciation. The key is careful selection of strike prices, expiration dates, and attention to option liquidity to ensure a seamless implementation.
If you’re a long-term investor looking for a tax-smart, low-cost way to lock in your hard-earned gains, the zero-dollar collar is an advanced, yet accessible, options play worth exploring before year-end volatility picks up.
