Client Situation
Fixed Income Alternative
Keep a defined limit on downside and open up some equity upside that bonds and CDs can’t offer.
Traditional fixed income protects principal in exchange for a fixed yield. Defined-outcome strategies can set a similar limit on how much you can lose while letting you participate in a portion of equity gains.
Why look beyond traditional fixed income
The tradeoff fixed income asks you to accept: a known yield, but no share in equity growth.
Known, capped yield
Bonds and CDs pay a fixed coupon. If equities rally, you don’t participate.
Duration and credit risk
Bond prices fall when rates rise, and longer maturities amplify the move.
Inflation drag
A fixed coupon can lose real purchasing power if inflation stays elevated.
Three ways to think about capital preservation
Bonds / CDs
Traditional capital preservation
Downside
Principal at risk only if held to a loss / issuer default
Upside
Fixed coupon, no equity participation
Income
Known yield
Buffer
Absorb the first part of a decline
Downside
First losses absorbed, then 1:1
Upside
Capped equity participation
Income
Market participation, no coupon
Collar
A defined maximum loss
Downside
Hard floor on maximum loss
Upside
Capped equity participation
Income
Market participation, no coupon
How they compare
Illustrative 1-year comparison using one 100-share position.
| Attribute | Bonds / CDs | Buffer | Collar |
|---|---|---|---|
| Downside protection | Issuer / duration risk | First ~10% absorbed | Defined max loss |
| Upside | Coupon only | Capped near +15% | Capped near +12% |
| Income | Known yield | None | None |
| Equity exposure | None | Yes, capped | Yes, capped |
| Best when | You need a known yield | You want growth with a cushion | You want growth with a floor |
Illustrative only. Actual outcomes depend on live option pricing, the chosen expiration, and holding the position through the outcome period.
Important tradeoffs
- Defined-outcome strategies are not bonds. They do not return principal and their value depends on the underlying equity through expiration.
- Buffers absorb only the first part of a decline; beyond that buffer, losses resume one-for-one.
- Collars set a hard floor but cap upside above the call strike.
- Option pricing, dividends, and the chosen expiration all affect the final outcome.
- Listed equity option strategies are typically modeled in 100-share increments.
Model a capital-preservation outcome
Choose a stock or ETF and the shares you'd hold to see how a defined-outcome strategy sets a limit on downside while opening up some equity upside that bonds and CDs can't offer.
Explore equity upside with a defined downside limit.
See how a collar can set your maximum loss and maximum gain before you invest.
Free account. No credit card required.
SPY · Indicative 12-Month Collar
-10.0%
+12.0%
Max loss · Max gain
Live pricing