How Does a "Zero-Cost Collar" Strategy Work? ▴ Learn

How Does a “Zero-Cost Collar” Strategy Work?

A zero-cost collar is a specific implementation of the collar strategy where the premium received from selling the call option is exactly equal to the premium paid for buying the protective put option. This results in a net premium of zero, meaning the hedge is established with no upfront cost.

The trader foregoes all upside above the call strike for free downside protection below the put strike.

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