Why not use a stop-loss order instead of an equity collar to limit risk?
There are two major differences between a stop-loss order and an equity collar. First, if a stock stops trading and gaps down, the stop-loss order will have no effect until the stock reopens, which may be substantially below the limit price of the stop. By comparison, the Put portion of the collar can be exercised at the strike price, regardless of how low the stock may be trading after it reopens. Second, a stop-loss order automatically kicks you out of a stock when it reaches the limit price, which may in fact be when you should consider buying more shares. With a Put option, you have the opportunity to wait and see if the stock bounces back, which it often does.
