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elusive deal was sealed after Quaker spurned an earlier PepsiCo offer and a more recent offer from Coca-Cola had been withdrawn.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 ?
Instead I bought myself three male shirts that are tunic length, collarless I look totally oriental when I wear them.
If you are female, wear a blazer over a collarless shirt.
The Duchess isn''t afraid to recycle outfits and her blue collarless Missoni coat is one of her repeat favourites.
A witness, who saw the collarless dog escape its nearby home, thanked the actress and alerted its owners to the animal's whereabouts.
On one memorable walk, as we scoped out available real estate, my husband and I were confronted on a sidewalk outside a school by a huge, growling, collarless St.
A recent endorsement of a colourful kitenge wraparound and headscarf as the national dress for Tanzanian women, and for men a suit similar to the collarless one worn by the former Chinese prime minister, Chou en-Lai, have not gone down well with the people.
Artifacts in the exhibit include Beatles wigs, one of Ringo Starr's collarless suit jackets, Paul McCartney's set list from a 1962 performance and a wall from the "Ed Sullivan Show" with Beatles signatures and caricatures.
TIGER Woods and Greg Norman got away with a breach of European Tour regulations when they both wore collarless shirts for their third rounds of the Open.
Tiger looked as fit as a fiddle in his snazzy new collarless shirts and put Mickelson right in his place with a
"He brought to the forefront of cutlery such innovations as a rocking-action and collarless bolster on chef's knives, as well as the extraordinarily sharp elite edge."
There were four guys in collarless jackets and pudding-bowl haircuts back in 1964 and they made me passionately curious, uncontrollably excited, doggedly determined to go to Blighty.