Options Strategy Workshop: Using Collars to Protect Precious Metal Gains Post-Large Sales

Stop Watching the Price Chart and Start Locking Gains: A Practical Options Workshop for Precious Metals Investors

If you own a fast‑running precious metals fund that just rallied 100%–200% in the past year and you woke up to headlines about a multi‑million dollar sale from a large holder (think the $4M ASA sale reported in late 2025), you face two clear problems: how to preserve gains and how to stay positioned for further upside without exposing the portfolio to a sudden drawdown. This article gives you a step‑by‑step, tradeable collar and covered‑call playbook to protect those gains in 2026 market conditions.

Why collars matter now (2026 context)

Late 2025 and early 2026 brought several dynamics that make collar strategies especially relevant for precious metals funds:

• Elevated macro sensitivity: rate expectations, inflation surprises and episodic geopolitics increased realized volatility in metal prices, increasing option premiums.
• Options market improvements: expanded retail and institutional options liquidity and AI‑driven quoting tools make execution of multi‑leg hedges faster and cheaper than previous cycles.
• More OTC appetite: banks and dealers in 2026 offer bespoke OTC structured collars and structured overlays for large positions, enabling reduced transaction footprints for blocks above a few million dollars.

Bottom line: premiums are larger than in the low‑volatility 2021–2023 period, so you can build protection more cheaply or at zero cost by using covered calls to finance puts.

Overview: Covered calls vs. Collars — which to choose?

Both tools are option‑based overlays, but they serve different goals:

• Covered call: You sell call options against shares you own. Income reduces cost basis and provides partial downside cushion, but caps upside if shares are called away.
• Collar: You combine a covered call with a long put. The call funds (fully or partially) the put. The result is a defined range: a floor (put strike) and a capped upside (call strike).

Use a covered call when you are willing to surrender upside for income. Use a collar when you need explicit downside protection below a defined level.

Realistic example: Your precious metals fund after a large sale

We work an end‑to‑end example. Replace the numbers with your position to get actionable outputs.

1. Position: 2,000 shares of a precious metals ETF/fund (symbol: PMF). One options contract = 100 shares, so you’ll trade 20 contracts per leg.
2. Current price: $50. Position value = $100,000.
3. Cost basis: $18 (this fund has been a big winner — up ~178% over the year — similar context to funds that reported large insider/fund selling in late 2025).
4. Concern: A large sale by a major holder increases short‑term downside risk from sentiment or forced selling. You want to lock a meaningful portion of $82,000 unrealized gain but keep some upside optionality.

Step‑by‑step collar construction

The goal: construct a paid collar that protects 80% of the unrealized gain while allowing ~12% more upside over the next 3 months. We’ll show both a paid and zero‑cost collar option.

Step 1 — Decide protection threshold and allowed upside

Choose how much downside protection you need. In this scenario we want to protect to a level that secures most gains while leaving room for further appreciation:

• Desired floor: protect to $42 per share (a ~16% drawdown from $50). This locks most of the $82k unrealized gain.
• Desired upside cap: allow price to rise to $56 (12% upside) over 3 months.

Step 2 — Pick expirations

Choose an expiry that matches the near‑term risk window after the news event. For insider/fund selling events, 1–3 month collars are common to cover the immediate sentiment reaction. Use longer dated (LEAPS) puts if you prefer long‑term insurance.

We select a 3‑month expiry for both legs to keep the window consistent.

Step 3 — Determine strikes

Strike selection aligns with your floor and upside cap:

• Buy 20 put contracts (100 shares each) at the $42 strike.
• Sell 20 call contracts at the $56 strike.

Step 4 — Check current option premiums and compute net cost

Example market quotes (hypothetical but realistic in 2026 conditions):

• $42 put cost = $1.70 premium per share ($170 per contract).
• $56 call premium = $1.20 premium per share ($120 per contract) collected.

Per share net cost = put premium − call premium = $1.70 − $1.20 = $0.50. For 2,000 shares, net cost = $1,000. That locks the floor at $41.50 effective per share (put strike $42 minus net cost $0.50), securing the majority of gains for a nominal cost.

Step 5 — Execution considerations

• Use limit orders for both legs or a single multi‑leg (combo) order to get simultaneous fills and avoid legging risk.
• Check margin: a collar on owned shares generally reduces margin requirements; many brokers allow buying puts to offset risk of sold calls.
• Confirm liquidity: ensure option open interest and bid‑ask spreads are reasonable for the $42 puts and $56 calls. If liquidity is thin, widen spreads or use nearby strikes with better market depth.

Alternate: Zero‑cost collar and tradeoffs

With different strikes you can achieve a zero‑cost collar (put premium = call premium). For example:

• Buy $40 puts for $2.40 and sell $56 calls for $2.40 — net cost $0. Floor becomes $40 (no out‑of‑pocket), upside capped at $56.

Tradeoffs:

• Zero‑cost collars provide a cleaner cash flow but generally widen your protected range (lower floor or lower cap). They may also limit upside substantially if markets rally past the call strike.
• Paid collars (small net cost) let you choose a tighter floor and more attractive upside cap.

Covered calls as the base financing tool

If your main goal is to generate income and you are comfortable with the possibility of assignment, selling covered calls alone is a fast way to protect a portion of unrealized gains.

Example: Sell 20 contracts at the $56 strike for $1.20. That nets $2,400 premium today, lowering your effective basis and providing a ~4.8% immediate cushion on a $50 price. The downside: if PMF rallies past $56 before expiry, shares are likely assigned (sold) at $56, realizing gains and possibly triggering taxes.

Management rules and monitoring (practical triggers)

Hedges are not "set and forget." Use a short checklist for monitoring and adjustments:

1. Volatility change: if IV spikes 20%+ after execution, consider rolling the put down or out to widen the floor in light of higher costs.
2. Price breach of collars: if price approaches the call strike and you want to keep shares, consider buying back the call and rolling it higher (for a debit), possibly financed by selling a further‑out put or reducing size.
3. Insider or block sale follow‑through: if additional selling occurs, you can roll the put lower or buy extra protection; if selling abates, allow options to decay or close early to free capital.
4. Tax window: if assignment triggers large taxable events during a tax year where you want to manage gains, time call expirations and roll dates around tax planning.

Advanced considerations for large positions (>$1M)

If your position is large relative to market liquidity, retail exchange options may be impractical. In 2026 many funds and wealthy investors use: specialized platforms and institutional desks:

• OTC structured collars: Banks provide bespoke collars with custom strikes and other features (e.g., barrier puts) that reduce visible market footprint and can be net‑cost efficient. These often require minimum notional liquidity and credit lines.
• Index/ETF alternatives: If the underlying fund options are illiquid, consider hedging with correlated liquid instruments (e.g., GLD options or an index of miners) but be mindful of basis risk and imperfect correlation.

Tax and regulatory nuances (practitioner notes)

Options can have specific tax treatments. High‑level points:

• Assignment of covered calls results in a sale of shares and can create short‑ or long‑term capital gains depending on your holding period.
• Buying puts is generally treated as a capital asset; if the put is exercised you sell shares at the put strike, which affects gain calculations.
• Buying and selling complex collars can complicate basis tracking; keep careful records of the premiums and premiums received/paid.
• Wash sale rules may apply if you repurchase substantially identical securities within the wash period — consult a tax advisor for specifics.

Important: tax rules change across jurisdictions and over time. Use these trade structures only after consulting a qualified tax professional.

Practical trade checklist (ready before you click the button)

1. Confirm position size in shares and convert to contracts (shares ÷ 100).
2. Pick expiry that covers the risk window (1–3 months for near‑term selling events).
3. Choose put strike for the protection floor and call strike for allowed upside.
4. Check option liquidity (OI, volume, bid/ask). Prefer strikes with tighter spreads.
5. Decide on paid vs zero‑cost structure and confirm net premium.
6. Enter as multi‑leg (combo) limit order to avoid legging risk. Consider using OCO orders for follow‑up rolls.
7. Record trade details for tax basis and P&L tracking.

Scenario walkthrough: what happens if the price gaps down 20%?

Using our paid collar (buy $42 puts, sell $56 calls):

• If PMF falls to $40 at expiry: the $42 puts are in the money. You can exercise or sell the puts, effectively selling shares at $42 (minus the small net cost), protecting the bulk of your gains.
• If PMF rallies to $60 at expiry: your $56 calls are likely assigned; you sell shares at $56 and realize gains on the sale. The collar protected the downside but capped upside at the call strike.
• If PMF trades between $42 and $56: both options likely expire worthless and you keep the shares plus the net effect of premiums — you’ll have reduced basis by the net premium paid/received.

Common mistakes and how to avoid them

• Legging into a collar: do both legs together to prevent directional fills that leave you naked on one side.
• Ignoring liquidity: wide bid/ask spreads can turn a cheap theoretical collar into an expensive practical one.
• Over‑hedging for too long: long, expensive put protection can eat returns; align expiry with the real risk window.
• Tax surprises: assignment around fiscal year‑end can create unintended tax events—coordinate with tax planning.

2026 trends to watch that affect collar strategies

• Smart order routing and AI market‑making are reducing execution slippage for complex multi‑leg orders.
• Increased dealer willingness to offer structured collars for block trades as balance sheet efficiency improves.
• Macro events (rate pivot chatter, geopolitical flareups) remain the primary drivers of short bursts in metal volatility—these are the windows where collars buy peace of mind.

Rule of thumb for 2026: when implied volatility rises, the cost of puts increases but so does call collection; evaluate collars dynamically rather than on fixed heuristics.

Final checklist: when to use a collar vs covered call

• Use a collar when you want a defined downside floor and are willing to cap upside in the near term.
• Use a covered call when you prioritize income and accept potential assignment and tax realization.
• Opt for OTC or correlated hedges when your position is large relative to listed option liquidity.

Actionable takeaways

• Translate your share position into the number of contracts first — 100 shares per contract is easy to forget under stress.
• Match collar expiry to the immediate risk window created by large sells and news flow (1–3 months is common).
• Prefer multi‑leg limit or combo orders to avoid execution slippage and one‑leg risk.
• For large blocks, investigate dealer‑arranged OTC collars to compress market impact and tailor strike exposures.
• Always document trades for tax basis and get professional tax advice before executing sizeable option overlays.

Next steps (call‑to‑action)

If you want a tailored collar built for your exact position size and tax situation, run the numbers with our hedging worksheet or contact a licensed options strategist. Protective collars and covered calls are practical, tradeable tools — use them to convert headline‑driven anxiety into disciplined risk management.

Ready to model a collar on your position? Export your holdings, pick your risk window, and plug the numbers into a simulator or consult a professional. For bespoke, block‑level hedges, seek a dealer or institutional options desk familiar with OTC collars and 2026 liquidity regimes.

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