The Costless Collar Strategy (Zero-Cost Collar)

The Costless Collar strategy is a hedging measure that is used to manage underwriting risk. The underlying may be shares, other assets or intangible assets, such as a sales right or interest rate. In principle, the costless collar, which is also known as a zero-cost collar, is similar to why not try this out no the collar strategy. The main difference is that the investor does not incur any additional costs with the costless collar because of the risk-minimization. Compared to the collar strategy, the Costless Collar therefore offers less variation possibilities for individual design.

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Together with the underlying, the investor sells a purchase option for a price and period chosen by him. The buyer will pay the investor a certain amount for the option to purchase the underlying see navigate to this web-site at a specific time at the price determined by the investor. This amount pop over to this site give is then invested by the investor in a put to the same amount for the same period. The sales option is thus paid by the proceeds from the sale of the first option. This is the second major difference to the pure collar strategy, where the investor buys a call and a call together with the underlying. This variant is therefore also more expensive and somewhat riskier because the investor has to pay the risk of his risk additionally.

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The great advantage of the Costless Collar strategy is that the investor can keep his risk of loss in a defined, manageable framework without having to invest additional capital

Investors with a long-term horizon of expectation who do not want to react constantly to the market value the costless collar as a good way to secure their portfolio. can special info

In addition, the Costless Collar offers very few options for customizing and over here. adapting the strategy. This is a purely defensive strategy that is not suitable for short-term transactions.

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When is the use of costless collar strategy worthwhile?

The Costless Collar strategy is particularly worthwhile with relatively stable values, which show a rising trend. The costless collar strategy is not suitable for strongly fluctuating underlyings. The reason: on the one hand, the of experienced corridor between the current market value and the two options is usually comparatively narrow. On the other hand, options with a maturity of several months or even a year are usually sold and sold. While in many blue chips and in various markets the actual development can be estimated at least halfway realistic, this is not possible with strongly fluctuating underlying values.

For investors who choose the Costless Collar strategy, criteria other than the potential price gains are often decisive because they have a longer-term horizon work sources tell me of expectation. For example, the issue of the dividend paid by the issuer to its shareholders often plays a more important role in the decision to purchase than the