A collar with a net outlay of approximately zero is an options strategy that
A)combines a put and a call to lock in a price range for a security.
B)uses the gains from sale of a call to purchase a put.
C)uses the gains from sale of a put to purchase a call.
D)combines a put and a call to lock in a price range for a security and uses the gains from sale of a call to purchase a put.

Question

Quizplus · Accepted Answer

A collar strategy involves holding the underlying asset while simultaneously buying protective puts and selling call options against that holding. The premiums from selling the calls offset the cost of buying the puts, leading to a net outlay of approximately zero. This strategy locks in a price range for the security, protecting against downside risk while limiting upside potential.

A Collar with a Net Outlay of Approximately Zero Is