Also found in: Acronyms.
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.
Farlex Financial Dictionary. © 2012 Farlex, Inc. All Rights Reserved
The investment position of being short a call option and long a put option for stock already owned. The premium received from selling the call option is used to pay for purchase of the put. The collar is designed to protect an investor against a decline in the price of the stock without the investor being required to sell the stock and pay a tax on capital gains.
Wall Street Words: An A to Z Guide to Investment Terms for Today's Investor by David L. Scott. Copyright © 2003 by Houghton Mifflin Company. Published by Houghton Mifflin Company. All rights reserved. All rights reserved.