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Equity Collar

A hedging strategy 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 (if you are not a senior executive, director, or other affiliate).

This strategy allows you to hold the stock after an option exercise for long-term capital gains, 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 and is prohibited by many companies, and you give up the benefit of future price increases beyond the collar price.

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