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Zero-Cost Collar

   Also found in: Acronyms 0.14 sec.
zero-cost collar
The investment position of being short a call option and long a put option for stock already owned. The premium received from selling the call option is used to pay for purchase of the put. The collar is designed to protect an investor against a decline in the price of the stock without the investor being required to sell the stock and pay a tax on capital gains.
Zero-Cost Collar
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. See also: Collar.


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