The Law Dictionary

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COLLAR Definition & Legal Meaning

Definition & Citations:

A SPREAD consisting of a LONG CALL OPTION and a SHORT PUT OPTION, or long put and short call, with the same expiry date. The LONG POSITION (which requires payment of PREMIUM) is intended to provide RISK protection or speculative opportunity, while the SHORT POSITION (which results in receipt of premium) helps defray, and in some cases eliminate, the cost of the long option. See also ZERO COST COLLAR.

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