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Equity collar

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Equity collar
Equity collars are used by investors keen to reduce their Downside risk. An Equity Collar is formed by buying an Equity put Option with a Strike Price below the current value of the Equity, at the same time as selling an Equity call Option with a strike above the current Equity price. Thus a Collar is imposed around the investor’s Equity Position. If the value of the Underlying Equity falls through the strike of the bought put, it can be exercised to Limit losses. However, if the Underlying stock rises through the strike of the sold call, the investor may have to deliver the Equity at the strike, thus foregoing potential additional upside.

See also Collar
Posted by  Privatebanking.com
 
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