--- title: "Covered call, protective put and collar: how do they work?" description: "A covered call holds the underlying and sells a call above the market, so the premium cushions a small fall but the gain stops at the strike." source_url: "https://www.rupeecase.com/learn/questions/covered-call-protective-put-collar" --- A collar moves with the index between two strikes and is fixed outside them Profit and loss at expiry for one long future, one bought put and one sold call on one lot of 65 units, on the 30 Jun 2026 chain at the settle prices of 10 Jun 2026. The put and call strikes sit below and above the future. Source: NSE end of day data, computed by RupeeCase. As of 10 Jun 2026. On 10 Jun 2026 the 30 Jun Nifty chain had three prices that matter for a hedge: the future, a put below it and a call above it. The chart joins them into one collar on one lot of 65 units, priced at that day's settle prices. A covered call is a long future with a short call above it. The seller collects the call premium, which cushions a small fall. The cost is the cap: above the call strike the gain stops, while a larger fall still loses point for point once the premium has been used up. A protective put is a long future with a long put below it. The put sets a floor, and below its strike the loss stops growing. The premium is paid whether or not the index falls, so the floor has a running cost. A collar is the two together: a long future, a long put and a short call. The call premium pays for part of the put, so the net cost is lower than the put alone. The position moves with the index between the two strikes and is fixed outside them. Two limits apply. The chart uses synthetic positions at expiry and leaves out time, margin and costs. Whether a hedge fits a holding, and how large it should be, is a question this page does not answer. The payoff builder lets you change the strikes and see the result. **Before you trade.** Derivatives trading carries a high risk of loss. SEBI's study "Profitability of Individual Traders in the Equity Derivatives Segment (FY25 to FY26)" (August 2026) found that 87.7% of individual traders in equity F&O made net losses in FY26, with aggregate net losses of Rs 91,685 crore. [Read the SEBI study](https://www.sebi.gov.in/reports-and-statistics/research/aug-2026/study-profitability-of-individual-traders-in-the-equity-derivatives-segment-fy25-fy26-_103835.html) Covered call, protective put and collar: how do they work?A covered call holds the underlying and sells a call above the market, so the premium cushions a small fall but the gain stops at the strike. A collar adds a bought put below the market to that position, and the call premium pays for part of the floor. LGo deeper ## Where Learn teaches this. [Go deeperCovered call, protective put and cash secured put8 min, Beginner](/learn/path-17/module-17-3-covered-call-and-protective-put)[Go deeperCollars and put spreads as cheaper hedges9 min, Intermediate](/learn/path-17/module-17-14-collars-and-put-spreads)[Try itPayoff builderLegs from a dated chain, the expiry and before expiry curves, breakevens and the charges.](/learn/tools/payoff-builder) SSources ## Go to the source. 2 sources, NSE the most cited The publisher of each source listed below. Source: Module undefined source list. 1. [NSE, equity derivatives contract specifications (instruments, expiry, lot size and settlement)](https://www.nseindia.com/static/products-services/equity-derivatives-contract-specifications) NSE 2. [SEBI investor education, Understanding derivatives](https://investor.sebi.gov.in/understanding_derivatives.html) SEBI ?Questions people ask ## Related questions. 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