The term collar refers to two different financial terms.  The first being an option strategy used to hedge risk.  The strategy is used after a long position in an equity has a large price rise.  Collars are when the investor purchases both out of the money call and put options to hedge against the risk of the stock falling in price.  Although this strategy  protects against large losses, it also prevents large gains.  This is also known as a “hedge wrapper”. The second way this term can be used is to refer to market making restrictions on trading activity, an example of which would be a circuit breaker.

« Back to Glossary Index