1. Hedging: Investors use collars to manage risk by hedging against unfavorable market conditions.
2. Income generation: Collars can also be used to generate extra income on an existing portfolio. By selling a call option, an investor can receive a premium, which provides additional income on the investment.
3. Tax management: Investors may use collars to manage capital gains taxes. By selling a call option, they can delay the realization of capital gains and reduce their tax bill.
Overall, collars offer a way to limit risk while potentially earning additional income on investments. It is a useful tool for investors who want to protect their portfolios from volatility and market fluctuations.
Collars
Financial Term
1. Hedging: Investors use collars to manage risk by hedging against unfavorable market conditions.
2. Income generation: Collars can also be used to generate extra income on an existing portfolio. By selling a call option, an investor can receive a premium, which provides additional income on the investment.
3. Tax management: Investors may use collars to manage capital gains taxes. By selling a call option, they can delay the realization of capital gains and reduce their tax bill.
Overall, collars offer a way to limit risk while potentially earning additional income on investments. It is a useful tool for investors who want to protect their portfolios from volatility and market fluctuations.