You own 100 shares of TSLA bought at $420. You buy a put for a floor and sell a call whose premium helps pay for it. The scale never moves, so you can watch the shape. Grab the blue dot: left and right changes the stock price, up and down changes implied volatility. Drag either strike handle to move your floor or your ceiling. Lock any variable to hold it still and isolate one effect.
The sold call pays for the bought put. Generally the call premium you collect offsets most or all of the put you buy, so a collar can protect a stock you own for little or no cash out of pocket, sometimes even a small credit.
You trade upside for a floor. As a rough guide, not a promise, your losses stop at the put strike and your gains stop at the call strike, so you cap the best case in exchange for capping the worst case.
It is meant for a position you want to keep. In practice a collar brackets a stock you already own and plan to hold, buying you a defined range through an event or a rough patch without having to sell the shares.
Taxes are not shown here. Options and the underlying stock are taxed differently, and it depends on your holding period and account type. None of this is tax advice.