Collar agreement,
Definition of Collar agreement:
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.
Effectively, a collar sets a ceiling and a floor for a range of values: interest rates, market value adjustments, and risk levels. With the many securities, derivatives, options, and futures now available, there's no limit to a collar potential.
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.
Purchasing: Arrangement in which the maximum limit (ceiling or cap) and/or the minimum limit (floor) is fixed.
Generically, a "collar" is a popular financial strategy to limit an uncertain variable's potential outcomes to an acceptable range or band. In business and investments, a collar agreement is a common technique to "hedge" risks or lock-in a given range of possible return outcomes. The biggest drawback to a collar is limited upside and the cost drag of transaction expenses. But for certain strategies, a collar acting as an insurance policy more than overcomes the additional fees. .
Index futures: Stock or commodity exchange volatility level at which a circuit breaker is triggered to temporarily halt the automated trading system.
Meaning of Collar agreement & Collar agreement Definition
