Collar

Combination of put options and call options used, for example, by energy producers and end users to hedge against extreme price movements by keeping price within a defined range. The downside risk is limited at the cost of the upside potential. If price falls below the ‘floor, the end user pays the energy company under the contract. If the ceiling’ is exceeded the energy company pays the end user.

Leave a Reply

Your email address will not be published. Required fields are marked *