Zero Cost Collar

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Dictionary Says

Definition of 'Zero Cost Collar'

A type of positive-carry collar that secures a return through the purchase of a cap and sale of a floor. Also called "zero cost options" or "equity risk reversals."
Investopedia Says

Investopedia explains 'Zero Cost Collar'

This investment strategy is sometimes used in relation to interest rates, commodities, options, and equities. Investors looking to secure a return will sell a cap and buy a floor, whereas borrowers will sell a floor and buy a cap. For investors, the cost of the cap is offset by the income received from the floor.

An example of a zero cost option collar is the purchase of a put option and the sale of a call option with a lower strike price. The sale of the call will cap the return if the underlying falls in price, but it will also offset the purchase of the put. Obviously, upside risk is still unlimited.

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'Zero Cost Collar'

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    ... Tax Savings A collar can be an effective way to protect the value of your
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  • Managing Interest Rate Risk

    http://www.investopedia.com/articles/optioninvestor/08/manage-interest-rate-risk.asp
    ... A zero cost collar can also be established in order to lower the cost of hedging,
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  • Using LEAPS With Collars

    http://www.investopedia.com/articles/optioninvestor/07/LEAPS-collars.asp
    ... The dynamics of a collar can vary greatly depending on the situation. Investors
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  • Costless Collars: Because Asset Allocation Is Not Enough

    http://www.investopedia.com/articles/optioninvestor/09/asset-allocation-not-enough.asp
    ... allows you to get the downside protection you want at zero or low net cost, depending
    on ... 6.3%) per share (from today's prices), as long as the collar is in ...

  • Diversifying A Concentrated Stock Position

    http://www.investopedia.com/articles/stocks/11/diversify-stock-position.asp
    ... for a "costless" collar, where the premium from the sale is just enough to cover
    the entire cost of purchasing the put option, resulting in zero cash outflow ...

  • Introducing The VIX Options

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    ... in a range, has high volatility of its own and cannot go to zero. ... of using LEAP call
    options can be a lower cost of capital ... Don't Forget Your Protective Collar. ...

  • Bear Put Spreads: A Roaring Alternative To Short Selling

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    ... profit potential is limited only by the fact that a stock can only go to zero). ... As
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  • Manage Risk With Trailing Stops And Protective Put Options

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    ... a protective put, if the share price falls to zero, you will ... a premium to buy the
    put, adding to the cost of owning ... And Don’t Forget Your Protective Collar. ...

  • CFP Study Guide - Financial Planning: Process and Rules ...

    http://www.investopedia.com/exam-guide/cfp/financial-planning-process-rules/default.asp
    ... Cost Benefit Analysis; 17.4 Net Payment Cost Index; ... I; 25.7 Mortgage-Backed Securities;
    25.8 Zero-Coupon and ... Investment Strategies; 29.3 Swap and Collar Strategies ...

  • CFP Study Guide - Principles of Risk and Insurance - Introduction ...

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    ... Cost Benefit Analysis; 17.4 Net Payment Cost Index; ... I; 25.7 Mortgage-Backed Securities;
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