Market Movements

^{*Weekly Return is calculated as market open of the previous Wednesday, to market close this Tuesday (yesterday); Current Level is Tuesday’s (yesterday’s) close.}

Weekly Rollout

The market seems to be holding its breath ahead of this week’s Fed meeting. Investors are pricing in a 96% chance of a 25 basis point rate cut, but not everyone’s celebrating. Wall Street strategists warn that rate cuts, while typically bullish, might now signal weakness more than relief. If investors suspect the Fed is cutting to soften a slowdown rather than to declare victory over inflation, the recent rally could start to wobble.

Meanwhile, Oracle surged over 25% in a single day this past week, even with a market cap north of $500B. Impressive? Absolutely. On the political stage, Donald Trump appealed a court order blocking him from firing Fed Governor Lisa Cook. Yikes. Trump has also floated the idea of shifting corporate earnings reports from quarterly to twice a year, citing business efficiency. Whether these moves signal bold reform or political overreach, one thing’s clear—monetary policy and market structure may be facing more than just rate adjustments.

“Good-To-Know’s”

A very common hedge is something as simple as buying a put option to protect your stock. Hedges commonly require giving up some upside to reduce your downside. When using a protective put, you would give up a small amount of premium to protect, or insure, a much larger position.

The key idea is that a hedge is not a “bet.” It is a way of controlling the damage if things move against you. And like insurance, it feels unnecessary. Until it doesn’t.

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Thought Throttle

As investors, we’ve all experienced the thrill of buying shares of a stock. It’s super exciting, until it’s absolutely nerve-racking. It is not uncommon to hit "Buy" and immediately feel the drop in your stomach. Maybe it’s a choppy market. Maybe it’s earnings season. Or maybe we just don’t totally trust the price action.

Whatever the case may be, sometimes the risk can get to us. Fortunately, there’s a way to stay in the game without leaving yourself fully exposed to the potential downside. That’s where the collar strategy comes in.

The collar structure is made up of three positions. They are 1) buying 100 shares of stock, 2) buying a protective put to cap your downside, and 3) selling a covered call to help pay for that protection. This creates a defined range, which limits how much can be lost. Conversely, it also limits how much you can gain.

You can loosely think of it like buying a house (the stock), paying for homeowners’ insurance (the put option), and then renting out a room to help cover the insurance premium (the call). It’s structured, disciplined ownership.

Let’s look at an example to solidify the idea.

Suppose you bought 100 shares of XYZ at $50 per share.

To protect your downside, you buy a $45 put expiring in about 30 days for $1.25. To offset the cost of that put, you sell a $55 call for $1.00. That leaves you with a net debit (cost) of $0.25 per share, or $25 total.

You’ve essentially bought “$45 and below” insurance for $25 in premium, which covers all 100 shares you own. That means the most you can lose is the drop to $45 from $50—a $5 loss per share, or $500 total. Add on the $25 you paid as a net debit for protection, and this gives you a maximum loss of $525. A lot less than the maximum loss of $5,000 associated with only share ownership.

Unfortunately, your gain is capped as well. If the stock rises to $55 or higher, you’d be called away at $55 per share. That’s a $5 gain ($500), minus the $25 you spent on the collar, for a max profit of $475. You’ve built a defined risk box around your position. Win or lose, you’ve set the boundaries.

Let’s see what would happen at expiration in three different scenarios.

Scenario 1: The stock tanks down to $35 per share by expiration.

In this scenario, we would achieve our maximum loss. Our stock position would drop from $50 per share to $35 per share. This is a loss of $15 per share, or $1500. The put option would have gained in value. It would be worth $1000, since $45 (strike) minus $35 (current) equals $10, or $1000 total (remember, puts profit when the underlying loses value). Our covered call at $55 would expire worthless.

Add in the $25 cost to open this position, and that gives us the maximum loss of $525.

Note that this is the maximum loss with the protection of the put. After expiration, you would still own the stock without a protective put, exposing you to further loss.

Scenario 2: The stock explodes up to $75 per share.

In this scenario, we would hit our maximum gain of $475. While the stock rises from $50 to $75, a $25 per share move, we don’t get the full benefit. This is because our covered call with a $55 strike would be assigned, obligating us to sell all 100 shares at that strike. So instead of a $2,500 gain, we lock in just $500 from the sale ($55 - $50 = $5 per share). The put option expires worthless, since the stock moved higher. After subtracting the $25 cost to enter the collar, we’re left with a net gain of $475.

Scenario 3: The stock stays at $50 per share

In this scenario, both of the options would expire worthless and there would be no gains or losses on the underlying stock. Our insurance policy would have essentially lapsed, and we would be out the $25 in premium. However, we would still own the stock and be subject to future gains (or losses).

The Takeaway

The collar is all about reducing uncertainty and accepting a defined range of outcomes. If the stock goes nowhere and trades flat, you paid a small fee for peace of mind. If it rips, your upside is limited—but you’d still walk away with a profit, depending on your call strike. At the end of the day, collars aren’t for everyone. But when you’re uneasy about jumping into a stock position, it’s a strategy that lets you buy…cautiously.

Note: It’s worth mentioning that we at Theta Throttle don’t typically spend much time buying options. This is because a lot of people treat option buying like lottery tickets. High risk, low probability. But not all buying is speculative. This is a case where we are purchasing an option in a rational and strategic manner. Of course it is circumstantial, but this shows the effectiveness of using Collars to enter a position.

Trade Mechanics

In this example, we’ll build a collar on HIMS & Hers Health (HIMS), a growth stock known for its volatility. Let’s break it down:

This collar creates a defined risk box with potential outcomes ranging from a $459 loss to a $541 gain, depending on where HIMS lands on October 17th. In this circumstance, we would have accepted a capped return in exchange for downside protection.

Now, what would be the outcome for each scenario at expiration?

In a downturn, our put will recoup a portion of the loss on the stock ownership. In a bull-run, the covered call will obligate us to lock in a profit, but it will feel as if we “missed out” on gains above the call’s strike. This is the tradeoff that we make.

No guessing. No panic-selling. And here’s the kicker—we would receive a net credit to open the position. For risk-managed traders looking to own volatile names like HIMS, this kind of structure can reduce emotional volatility while maintaining exposure to upside—just not unlimited upside.

Remember: Options prices can change rapidly, and assignment risk becomes more likely near expiration, especially if a call moves deep ITM. Collars are best used when you’re comfortable owning shares, but want guardrails in place. And, as always, sizing matters.

You’re still an investor. You’re just an investor with a helmet.

This is for educational purposes only—not a trade recommendation. Remember to always do your own due diligence and consult a financial advisor before making investment decisions.

Throttle Q&A

What Do the Greeks Look Like in a Collar?

A collar nets together the Greeks from each leg of the position. This usually results in a positive Delta, neutral to slightly positive Theta, and muted Vega.

Your Delta will be lower than owning the stock outright, since both the protective put and the covered call reduce some of that directional exposure. Theta varies depending on how close each strike is to at-the-money, but in many setups, it ends up close to neutral. Vega is limited, as the long put and short call offset most of the position’s sensitivity to changes in implied volatility.

To get the exact Greeks for your trade, enter all three legs into your broker’s options chain or strategy builder. Most platforms display live, net Greeks once the full position is entered. You can also calculate the combined values manually if needed.

How Customizable Is the Collar Setup?

Very. The collar is one of the most flexible strategies available because each leg (the stock, the put, and the call) can be adjusted to reflect your risk tolerance, outlook, and goals.

• Want more protection? Buy a higher-strike put.

• Want more upside? Sell a higher-strike call (you’ll get less premium).

• Want more premium? Sell a closer-to-the-money call, or buy a cheaper put.

You can even widen or narrow the range, adjust the options’ expiration dates, or roll individual legs as conditions change.

Some traders build zero-cost collars (where the put and call offset each other perfectly). Others take a small debit for tighter protection or a small credit for more aggressive setups.

The bottom line is that collars aren’t rigid. They’re a framework you can shape around your view of the stock and your comfort with risk.

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Disclaimer

The information provided in this newsletter is sourced from reliable channels; however, we cannot guarantee its accuracy. The opinions expressed in this newsletter are solely those of the editorial team, contributors, or third-party sources and may change without prior notice. These views do not necessarily reflect those of the firm as a whole. The content may become outdated, and there is no obligation to update it.

This newsletter is for informational purposes only and does not constitute personal investment advice. It is not intended to address your specific financial situation and should not be construed as legal, financial, tax, or accounting advice, or as a recommendation to buy, sell, or hold any securities. No recommendation is made regarding the suitability of any investment for a particular individual or group. Past performance is not indicative of future results.

Options come with inherent risks. We strongly advise you to consult with a financial advisor before making any investment decisions, including determining whether any proposed investment aligns with your personal financial needs.