What Is the Net Premium Received or Paid When Establishing a Zero-Cost Collar?
A zero-cost collar is established when the premium received from selling the Call Option exactly offsets the premium paid for buying the Put Option. This results in a net premium of zero, meaning the investor has created a risk-limiting hedge without any upfront cost.
The strike prices of the Call and Put are carefully selected to achieve this net-zero premium, trading off potential upside for free downside protection.
Glossar
Net Premium
Premium ⎊ The net premium, within the context of cryptocurrency derivatives and options trading, represents the aggregate difference between the total premiums paid and the total payouts received over the lifecycle of a contract.
Premium Paid
Cost ⎊ The premium paid represents the upfront cost incurred by the buyer of an options contract to acquire the right, but not the obligation, to execute a trade at a specific price.
Net Premium Received
Valuation ⎊ Net Premium Received represents the aggregate premium inflows accepted by an options writer or seller, less any adjustments for fees, commissions, or exercised options, forming a crucial component of derivative revenue.
Premium Received
Premium ⎊ Premium received is the immediate cash or cryptocurrency inflow generated by an option writer for selling or "writing" a derivative contract to a buyer.
Collar
Framework ⎊ Options collars, within cryptocurrency derivatives and financial engineering, represent a neutral strategy constructed from a protective put and a covered call, designed to limit both potential gains and losses around a specific underlying asset price.