Zero Cost Collar - Definition

An Investment strategy in which one buys or sells one Position while taking an opposite position for the same price that will limit both the return and the Risk of one's investment. An investor sells a position that caps return while buying one that limits loss, while a borrower does the opposite. A zero-cost collar may be used for options, stocks, Interest rates, or commodities.

A collar refers to the ceiling and Floor of the price fluctuation of an Underlying Asset. A collar is usually set up with options, swaps, or by other agreements. In corporate finance, the collar strategy of buying puts and selling calls is often used to mitigate the risk of a concentrated position in (sometimes) restricted stock. When the restricted Owner can't sell the stock, but needs to diversify the risk, a collar Transaction is one of the few tools available. Many corporate executives who receive chunks of their compensation in restricted stock need to employ this strategy to mitigate the diversification risk in their overall portfolio.



Terms near "Zero Cost Collar"

Zero Coupon
Zero Coupon Bond
Zero Coupon Inflation Swap
Zero lot line
Zero Minus Tick
Zero Plus Tick
Zero Prepayment Assumption
Zero-Based Budgeting (ZBB)
Zero-Beta Portfolio
Zero-Coupon Bond
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