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Put spread collar vs collar: where does the protection stop?

A put spread collar is a collar with one more leg: a second, lower put you sell to make the hedge cheaper. It works in a normal drop. In a crash, the protection runs out at the lower strike and you fall with the stock again.

Comparison · 7-minute read · Updated 2026-11-09

The short answer

A Collar protects 100 shares all the way down to zero below the put strike. A put spread collar protects only a band: from the long put down to the short put. Below the short put, you lose dollar for dollar again.

So pick the plain collar if what scares you is a crash. Pick the put spread collar only if you expect a normal pullback, want it hedged cheaply, and can truly afford the crash row.

What each one holds

• Collar: 100 shares, buy a put below the stock, sell a call above it.
• Put spread collar: the same three legs, plus sell a second put further below. The long put and the short put together are a put spread, a type of Vertical spread.

That extra short put brings in cash. It is also a promise: below its strike, the hedge stops paying.

A worked example (hypothetical)

You own 100 shares of Ridgeway Paper, a made-up stock, at $50. Both hedges run 90 days.

• Collar: buy the $45 put for $1.50, sell the $55 call for $1.00. Net cost $0.50, or $50.
• Put spread collar: the same two legs, plus sell the $40 put for $0.50. Net cost: $1.50 − $1.00 − $0.50 = $0.

The cheaper one costs nothing. Here is what nothing buys.

Check the $30 row the long way for the put spread collar. Shares: −$2,000. The $45 put is worth $15: +$1,500. The $40 put you sold is worth $10 against you: −$1,000. The call expires. Total: −$1,500. The collar has no short put, so it stops at −$2,000 + $1,500 − $50 = −$550.

The crash row

Down to $40, the put spread collar actually does a little better. It saved the $50 the collar cost. Between $45 and $40, both are fully hedged.

Then the floor ends. From $40 down, every $1 Ridgeway falls costs you $100, just like owning the shares with no hedge. At $30 you are down $1,500. At $20, $2,500. If the company failed and went to zero, you would lose $4,500, against the collar's $550.

When the cheaper one is the wrong one

The put spread collar is the wrong pick when:

• You are hedging because of a single big risk, like a court case, a trial result or a debt deadline. Those are the events that blow through a $5 band.
• The shares are a big part of your account. A crash is the scenario you can't afford, and that is the scenario it leaves open.
• You chose it only because the cost showed $0. That number hides the short put. The zero-cost collar explains why "free" hedges are paid for somewhere else.

It can fit when you expect a pullback of 10% to 20%, you want cover for that slice (the $45 to $40 band), and you'd hold the shares through a deeper fall anyway. This is also close to how many buffer funds are built. Buffer ETF vs collar runs that comparison.

Pick a collar if… pick a put spread collar if…

Both trades have the same call cap, so read protective put vs collar for what the cap costs in a rally. Try your own strikes in the options strategy payoff calculator. All the hedges are lined up in one table in the options strategy comparison chart.

The short put is covered by the long put above it, but some brokers still need a higher options approval level for a four-leg position, and that can limit it in a TFSA or RRSP. Check your broker's rules.

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