|A | B | C | D | E | F | G | H | I | J | K | L | M | N | O | P | Q | R | S | T | U | V | W | X | Y | Z|
A hedging strategy used for concentrated high-value stock positions in which you purchase put options and sell call options on your stock through a securities firm experienced with these transactions. This essentially sets a trading range (i.e. the "collar"), which can be structured so that the premium received for the sale of the call and the money paid for purchase of the put net each other out. The hedged position can be monetized with a loan.
As explained in the article series in the section High Net Worth on this website, this strategy allows you to hold the stock in a way that minimizes the risks of stock-price fluctuations and finances the cost of the put (zero-premium/zero-cost collar) or brings in more or less cash than the cost of the put. But it has uncertain legal and tax ramifications (e.g. it stops the capital gains holding clock) and is prohibited by many companies. You also give up the benefit of any future price increases beyond the collar price.
|Return to list||Register Now|