Zero-Cost Collar for IRA Accounts

What Is a Zero-Cost Collar?

A zero-cost collar (also called a "costless collar") is an options strategy that protects your stock position from large losses while preserving meaningful upside — and it costs you nothing in net premium.

The strategy has three components:

1. Own the stock — You already hold shares of a quality stock or ETF (e.g., SPY, QQQ, AAPL)
2. Buy a protective put — This sets a floor on your losses (downside protection)
3. Sell a covered call — The premium you receive pays for the put, making it "zero cost"

    Covered Call Strike ($130) ─── Upside cap (you sell here)
          |
          |   ↑ You keep gains up to here (~20%)
          |
    Current Price ($110) ──────── Your shares
          |
          |   ↓ Put protects below here
          |
    Protective Put Strike ($100) ── Downside floor (you're protected)

    Net cost: $0 (call premium pays for put)
    Your range: $100 to $130 (protected + upside)
                

How the Collar Works

The collar combines two well-known options strategies into one:

The Three Scenarios at Expiration

Scenario	Stock Price	What Happens	Your Outcome
Stock rises above call strike	Above $130	Shares called away at $130	You profit ~18% (capped)
Stock stays in range	$100–$130	Both options expire worthless	You keep shares + any gains
Stock drops below put strike	Below $100	Put protects you at $100	Max loss capped at ~9%

Why This Strategy Fits IRA Accounts

The zero-cost collar is one of the best strategies for retirement accounts. Here's why:

1. Capital Preservation is Priority #1

In an IRA, you can't easily replace lost capital. Unlike a brokerage account where you can deposit more funds, IRA contributions are capped ($7,000/year for 2026, $8,000 if over 50). A 40% market drawdown in an unprotected portfolio could take years to recover. The collar's protective put ensures your worst case is known and limited.

2. No Naked Options Required

IRAs don't allow naked option selling or margin-based strategies. The collar is fully covered:

• The call is "covered" because you own the underlying shares
• The put is "protective" because it hedges shares you already hold
• No margin is needed — this is a Level 1 or Level 2 options strategy

3. Tax-Deferred Growth

In a Traditional IRA or Roth IRA, the call premium you collect and any gains from rolling the collar are not taxed until withdrawal (Traditional) or are tax-free forever (Roth). This lets you compound the strategy's returns without tax drag.

4. Sleep-at-Night Factor

Retirement money causes anxiety. Watching your IRA drop 30% in a bear market is stressful. The collar lets you stay invested in equities (capturing long-term growth and dividends) while knowing your downside is capped. You literally set it and forget it.

The Dividend Advantage

One of the most underrated benefits of the collar strategy: you keep all the dividends.

Why Dividends Matter in a Collar

Since you still own the underlying shares, you continue to receive quarterly dividend payments. This provides cash flow on top of your collar protection:

ETF / Stock	Dividend Yield	Annual Dividend on $100K	Quarterly Payment
SPY (S&P 500)	~1.3%	$1,300	$325
QQQ (Nasdaq 100)	~0.6%	$600	$150
SCHD (Div. Growth)	~3.5%	$3,500	$875
AAPL	~0.5%	$500	$125
JNJ	~3.2%	$3,200	$800

Dividends and Early Assignment

One risk to be aware of: if you sell a covered call that is in-the-money near the ex-dividend date, the call buyer may exercise early to capture the dividend. To avoid this:

• Set your call strike well above the current price (out-of-the-money)
• Choose expirations that don't span major ex-dividend dates, or
• Use index options (SPX) which are cash-settled and can't be early-exercised

Capturing Up to 20% Upside

The key to keeping meaningful upside is choosing the right call strike. The further out-of-the-money you place the call, the more upside you retain:

Call Strike (% Above Current)	Upside Retained	Call Premium	Put Protection You Can Afford
5% above	5%	High ($4-6)	Strong (put at -3%)
10% above	10%	Moderate ($2-4)	Moderate (put at -7%)
15% above	15%	Lower ($1-2.50)	Wider (put at -10%)
20% above	20%	Small ($0.50-1.50)	Wider (put at -12%)

For IRA accounts focused on long-term growth, a 6-month to 1-year collar with the call 15-20% above current price is ideal. This gives the stock room to grow while still generating enough call premium to pay for your put protection.

Set It and Forget It

Unlike active trading strategies like 0DTE options that require daily monitoring, the IRA collar is designed to be hands-off:

The Set-and-Forget Timeline

1. Day 1: Buy 100 shares of SPY (or already own them). Sell a 6-month covered call 15% above current price. Buy a 6-month protective put 8% below current price.
2. Months 1-5: Do nothing. Collect dividends. Your position is protected regardless of market conditions.
3. Month 6: At expiration, evaluate and roll to a new collar if desired.

Why It Works for Busy People

• No daily monitoring needed — Protection is automatic via the put
• No stop losses to manage — The put IS your stop loss, built into the position
• No emotional decisions — You can't panic-sell because your downside is defined
• Works in any market — Bull market: you capture gains. Bear market: put protects. Sideways: you collect dividends.
• Time commitment: ~30 minutes every 3-6 months to roll the collar

Real-World IRA Collar Example

Let's walk through a concrete example using SPY in a Roth IRA:

Setup (January 2026)

Component	Details	Cost / Credit
Own 100 shares SPY	Bought at $590	$59,000 (already held)
Sell 1 SPY Jul 680 Call	15.3% above current price	+$8.50 credit ($850)
Buy 1 SPY Jul 545 Put	7.6% below current price	-$8.20 debit ($820)
Net cost		+$0.30 credit ($30)

Outcome Scenarios (July 2026 Expiration)

Rolling and Managing Your Collar

When your collar approaches expiration, you have several options:

Rolling Forward

The most common approach: close the expiring collar and open a new one at updated strikes. This is typically done 1-2 weeks before expiration when the remaining time value is minimal.

1. Buy back the short call (usually cheap if stock is below the strike)
2. Sell the protective put (collect any remaining value)
3. Open a new collar at updated strikes for the next 3-6 months

Rolling Up (After a Rally)

If the stock has risen significantly and the call is now in-the-money:

• Let the shares be called away at the strike (you keep the full gain)
• Rebuy shares at the new higher price
• Set up a fresh collar from the new price level

Rolling Down (After a Decline)

If the stock has declined and the put is protecting you:

• Exercise the put to sell at the put strike (locking in your protected price)
• Rebuy shares at the lower market price (or wait for further decline)
• Set up a new collar at the new cost basis

Risks and Considerations

The collar is a conservative strategy, but it's not without trade-offs:

Key Risks

• Upside cap — If the stock surges 40%, you only capture gains up to your call strike. This is the cost of protection.
• Opportunity cost — In a strong bull market, an unprotected position outperforms. However, you can't predict bull vs. bear in advance.
• Early assignment risk — Near ex-dividend dates, your short call may be exercised early. Manageable with proper strike selection.
• Collar gap — The space between your current price and put strike is your unprotected zone. Keep this manageable (5-10%).
• Liquidity — Choose liquid underlying stocks/ETFs (SPY, QQQ, AAPL) for tight bid-ask spreads on the options.

Who Should NOT Use Collars

• Traders who want unlimited upside potential
• Very short-term traders (the collar is a multi-month position)
• Those holding fewer than 100 shares of the underlying (options require 100-share lots)

IntelliTrade and IRA Collar Strategies

IntelliTrade's platform supports collar strategy management for IRA accounts:

• Collar builder — Finds optimal call and put strikes to achieve zero-cost or near-zero-cost collars
• Roll alerts — Notifies you when your collar is approaching expiration and suggests new strikes
• Dividend tracking — Tracks dividend income alongside collar returns for total return reporting
• Risk visualization — Shows your upside cap, downside protection, and break-even levels graphically
• IRA compliance — Only generates strategies permitted in IRA accounts (no naked options, no margin)

The collar strategy pairs well with IntelliTrade's other capabilities — use 0DTE strategies for daily income in a separate margin account, while your IRA sits protected with collars generating steady, protected growth.