Equity Collar
A financial strategy used to protect against large swings in the stock price during an M&A transaction, often by using options to limit potential losses or gains.
Implications
A risk management strategy involving the simultaneous purchase of a put option and sale of a call option on the same underlying asset, providing downside protection while capping potential upside gains, often used to hedge large equity positions.
Example
Example: An investor with a large position in a tech stock uses an equity collar to protect against a potential drop in stock price, buying a put option to set a floor and selling a call option to cap the upside.
Related Terms
Different from a simple hedge, which might only use put options for protection, an equity collar combines puts and calls to balance protection with cost.
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