Collar strategy vs. Bull Spread

[hsuwang]

Hello David,
What is the difference between a collar strategy and a bull spread?

For a collar strategy, the investor owns the asset and long a put, which is in a way like a long call option.
A collar strategy adds on top of it another short call, which then looks a bit like bull spread (long call, short call).

so are they similar in a way?

Thanks!

 

[David Harper CFA FRM]

Hi Jack,

I agree, they appear to have similar risk profile: capped upside and capped downside, and the collar as defined (long stock + long put + short call) is bullish.

The only difference I see (and I am *not* versed in collars per se) is the collar must be "funded" with the purchase of the stock, whereas the bull spread is essentially unfunded. I mean, the bull spread is initial net debit (the long bull spread is "out of pocket" a little bit, but the short short call largely funds the cost of the long call) whereas your covered call requires a full purchase of the stock (without the long stock, they are dissimilar as long put + short call is exposed on the upside).

Thanks, David