Collar


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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.

Collar

1. A way to hedge against the potential of loss by buying an out-of-the-money put while writing an out-of-the-money call. A collar is most beneficial when an investor holds a stock that has recently experienced significant gains. If the stock falls, the investor can exercise the put, ensuring a profit. If it continues to rise, the call places a cap on the profit.

2. On an exchange, a measure designed to prevent panic selling by stopping trading after a security or an index has fallen by a certain amount. For example, if the Dow Jones Industrial Average falls 10% in a trading day, the New York Stock Exchange suspends trade for at least one hour. A collar is intended to allow investors to determine whether a situation is really as bad as it looks. It is sometimes called a circuit breaker. See also: Suspended trading.

collar

1. In options, buying a put and selling short a call so as to limit the potential profit and loss from an investment position.
2. The level at which an index triggers a circuit breaker to temporarily stop trading.
3. In an acquisition, an upper and lower limit that will be paid for shares of the company to be acquired.
4. In a new issue, a limit on the price or interest rate that is acceptable. See also zero-cost collar.
Case Study In December 2000 PepsiCo, Inc., announced it would acquire Quaker Oats Co. for $13.4 billion in PepsiCo stock. The elusive deal was sealed after Quaker spurned an earlier PepsiCo offer and a more recent offer from Coca-Cola had been withdrawn. Both soft drink giants were after Quaker's noncarbonated beverages, including Gatorade. The deal specified that PepsiCo would offer 2.3 shares of its stock for each share of Quaker. At a then-current PepsiCo stock price of $42.38, the Quaker shares were each valued at $97.46. The agreement also provided a minimum and maximum value, or collar, for the Quaker stock. PepsiCo guaranteed a minimum price of $92 per Quaker share in the event PepsiCo stock fell below $40 for ten random days during the month prior to closing. Likewise, PepsiCo would be required to pay no more than $105 per Quaker share in the event PepsiCo stock increased to more than $45.65. The collar of $92 to $105 provided a maximum and minimum value that Quaker stockholders would receive for each of their shares. The earlier PepsiCo offer specified the same 2.3-to-1 exchange rate but had been rejected by Quaker because PepsiCo was unwilling to include a collar as part of the offer. In other words, PepsiCo refused to guarantee a minimum price for the Quaker stock it wanted to acquire.
References in periodicals archive ?
People are now finding employment in the blue collar jobs, and it is even more profitable,' Ngige said.
That said, if the handler takes enough time to properly condition a dog to a head collar, some dogs learn to accept the collars and seem reasonably comfortable with them.
The temptation early on was to assume that the heavy use of the collar would reinforce the intended behavior by strongly punishing the unintended behavior.
Lucy Green, an animal collection officer for the RSPCA said: "Staff said that this is the worst embedded collar injury they have ever seen.
Body and sleeve inc row (RS) Work to collar m, sl m, [knit to 1 st before raglan m, RLI, kl, sl m, kl, LLI] 4 times, knit to collar m, sl m, work to end--8 sts inc'd.
From the collar fabric, cut one collar front on the fold, one collar back on the fold and one collar center band.
In his book Working Class: Challenging Myths about Blue Collar Labor, Jeff Torlina explores how different workers answer these questions, along with many others relating to blue- and white-collar workers, and seeks to provide ideas to form the basis for new norms from which a more equal class system may emerge.
During this time, the padlock collar became fashionable.
The slick drill collar segment is envisaged to be the largest market segment during the forecast period.
Patterdale terrier Daisy gave her owner Louise Spencer a scare when she got her collar stuck in a radiator she likes to lie on.
The researchers took 63 pet dogs who had poor recall (response to coming when called) and related problems, including livestock worrying (chasing), which are the main reasons for collar use in the UK, the university says.
The latest e-collar products, including no bark collar systems and other remote dog trainer solutions, are designed to help dog owners to train their pets.