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elusive deal was sealed after Quaker spurned an earlier PepsiCo offer and a more recent offer from Coca-Cola had been withdrawn.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 ?
Washington, Sep 9 (ANI): Almost three out of four cats wear collars despite their owners being sceptical about its success, revealed a study.
Clean-collared people whose collars were always clean and
Elaine Hall, of Guisborough, and Susan Coggin, from Nunthorpe, have launched Couture Collection, to make and sell their upmarket dog collars.
When not in use, the pallet collars can be folded flat and nested together, with up to seven units inside one assembled collar, thus saving space and return transport costs.
"Collars should be of the type that break when caught on entanglements such as branches," said branch spokesman.
Once she fell asleep, Quigley and his colleagues were able to safely approach her and place a collar around her neck.
The BCSD consulting company has developed reflective collars which will be worn by domestic animals to ensure visibility at night.
That usually involves some sort of interfacing to provide structure and body to areas such as plackets, cuffs and especially collars. A good collar stands firm against the center back, rolls smoothly around the neckline and has crisp, well-defined corner points.
There are a wide range of types of both collars and harnesses, but for the purposes of this article we're going to focus on something that your dog could wear on a regular basis for walks and identification.
Recently, a new generation of GPS collars has become commercially available for large mammals that, generally, provides limited daily location fixes and claims a relatively long field life, compared to more 'full-featured' (i.e.
We recommend that you never use collars that are designed to work through the application of pain, discomfort, or aversive sensations, including:
IN COMING INSTALLMENTS I will be addressing some specific training methods and training tools, some of which involve the use of electronic training collars. With that in mind, I would like to take this opportunity to discuss my personal history with, and thoughts about, e-collars.