When the market put together a strong move, many readers are looking at big gains in their stock holdings.

That?s great, but it?s also a cause of sleepless nights in the homes of many investors. Still traumatized by the severe reversal of 2000-02, these readers are worried that their hard-won profits might vanish in a sudden, violent turnabout. After all, it?s happened before.

The tone of the entire market could turn sour if, for example, we get a series of negative economic reports, or if we suffer a sudden setback in the war on terror. It?s easy to envision the DOW giving up 1,000 points in no time and pulling most stocks down with it.

An individual stock can suffer the same fate via a negative headline or analyst downgrade.

But it?s difficult to sell or reduce your positions in big winners when the market is doing well. An investing axiom is, ?Let your winners run.? So how do you protect your gains?

A tried-and-true method is to use options as ?insurance? while keeping in mind that protection from risk is often offset by lowered profit expectations. We like to sell a covered call against the stock that we own and use the income from the covered call sale to buy a ?protective? put for our position. This is called a "collar."

Let?s suppose that we own XYZ company, but because the market is volatile we are worried that we may take a beating if it tanks. XYZ trades at 50 and is optionable. In this case, we sell a 55 call option on XYZ and use the income from the sale to buy a 45 put on XYZ. We?ve ?collared? the stock on the upside and downside.

If XYZ moves higher and exceeds 55 we will get "called out" and have to sell the stock at 55, but we will have made an additional 5 dollars per share. If XYZ falls, our put will increase in value and offset the loss in the underlying stock, which we will still own.

The collar can limit your profit on the position. If XYZ explodes to 65, you will still have to sell it for 55, the strike price of the call option that you sold. On the other hand, if the stock doesn?t rise above the strike price, perhaps reaching only 53 or 54 by expiration day, you are still going to own XYZ. In this case, you made a few bucks on the stock, and it cost you nothing to protect your investment.

Then you can do another collar by selling the 60 call option and buying the 50 put option. You can do it again and again until you are finally called out of the stock or decide to close your position and take your profit.

A collar is one of the safest plays, and it has saved us many times when the market went nuts. Sure you are "locked in" as far as profits go, but we would rather be safe than sorry!