A collar is a trading strategy used in the stock market to limit both the negative and positive effects of a change in the price of the underlying instrument. Collars are concluded with shares or interest rate indices as the underlying.
Collar with action options
By buying a put option (with a lower price limit), shares are hedged against major downward movements. The expenses for the purchase of the put option are reduced by the simultaneous sale of a call option (with an upper target value), but the investor then no longer participates in price increases of the share above the upper target value.