collar agreement

Definitions (4)
Popular Terms
1. Purchasing: Arrangement in which the maximum limit (ceiling or cap) and/or the minimum limit (floor) is fixed.
2. 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.
3. Index futures: Stock or commodity exchange volatility level at which a circuit breaker is triggered to temporarily halt the automated trading system.
4. 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.

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