The most common derivative instruments used by insiders are: 1) prepaid variable forwards (forwards), 2) zero-cost collars (collars), 3) exchange funds, and 4) equity swaps.
Zero-Cost Collars (Collars) and Prepaid Variable Forward Contracts (Forwards)
Lemmon, 2001, "Managerial Ownership, Incentive Contracting, and the Use of Zero-Cost Collars and Equity Swaps by Corporate Insiders," Journal of Financial and Quantitative Analysis 36, 345-370.
Percentage of Ownership and Dollar Amount Covered by Each Derivative Security Percentage of Ownership Invested N Mean Median Zero-Cost Collars 227 31.
Berry Petroleum Company (NYSE:BRY) has entered into zero-cost collars
for approximately 10,000 barrels of oil per day for the period January 1, 2006 through December 31, 2009.
Primarily due to this significant price movement, the Company has hedged approximately one third of its crude oil production for the next 12 months using zero-cost collars
to lock-in attractive profitability on those barrels and partially protect the Company from a near-term price decline.