collar agreement definition

collar agreement

Purchasing: Arrangement in which the maximum limit (ceiling or cap) and/or the minimum limit (floor) is fixed.

Investing: Provision in a stock-swap acquisition under which the ratio between the swapped stock is adjusted if the value of either stock falls or rises above a certain limit before the deal is consummated.

Index futures: Stock or commodity exchange volatility level at which a circuit breaker is triggered to temporarily halt the automated trading system.

Securities trading: (1) Simultaneous purchase of two options, as a protection against wide fluctuations in interest-rates. One (called cap or ceiling) covers increases and the other (called floor) covers decreases in interest rates beyond specified limits. (2) Simultaneous purchase of an in-the-money put option and the sale of an out-of-the-money call option as a protection against both upside and downside market risks. Also called collar.

This content can be found on the following page:

http://www.businessdictionary.com/definition/collar-agreement.html