Zero Cost Collar

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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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Lemmon, "Managerial ownership, incentive contracting, and the use of zero-cost collars and equity swaps by corporate insiders," Journal of Financial and Quantitative Analysis, vol.
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.
We subdivide the sample into four different types of hedging contracts: 1) zero-cost collars, 2) variable forwards, 3) exchange funds, and 4) equity swaps.
The Securities and Exchange Commission requires insiders to report their purchases of zero-cost collars and similar derivatives.