The Collar Spread is similar to the Covered Call trade, except an investor will purchase an Out-of-The-Money (OTM) put to protect against a sudden decline on the stock. Like the Covered Call, the Collar Spread is a neutral to bullish strategy. In a Collar Spread, an investor will buy shares of stock and then sell an At-The-Money (ATM) or OTM call against those shares. The investor will purchase an OTM put. The primary risk in a Covered Call strategy is that the underlying stock may decline faster than premium collection. By purchasing an OTM put option, we can protect the position from a large drastic decline in the stock price. The Covered Call sale helps finance the purchase of the put option.