A variation of an equity collar that allows investors to generate cash proceeds while still receiving downside protection (though at the expense of foregoing some upside potential). Establishing a credit collar means it will be necessary to be content with either a lower level of downside protection or a lower cap on the upside potential. In general, an investor can determine the amount of cash he would like to receive in order to obtain the desired level of downside protection and period of time for the strategy to remain in effect. An investor can generate the required amount of cash by fine-tuning an appropriate call strike price.

By definition, a collar is a spread strategy used to protect unrealized profits on a position already established. With this in mind, an investor purchases a protective put on a long equity position, and offsets the cost of that put by writing a call that is covered by the long equity position. In most cases, both the purchased put and the sold call are out-of-the-money. If the value of the call exceeds the value of the put, the premium the investor receives will be larger than the premium he pays, thus, establishing a credit collar.