have an acceptable investment available to put the money from the sale into? What are the transaction costs associated with liquidating the portfolio? Would the investor rather just hold on to the stock? What are the tax consequences? If it makes more sense to hold on to the stock (or other underlying asset), the investor can limit that downside risk that lies below the strike price on the put in exchange for giving up the upside above the strike price on the call. Another advantage is that the cost of setting up a collar is (usually) free or nearly free. The price received for selling the call is used to buy the put—one pays for the other. Finally, using a collar strategy takes the return from the probable to the definite. That is, when an investor owns a stock (or another underlying asset) and has an expected return, that expected return is only the mean of the distribution of possible returns, weighted by their probability. The investor may get a higher or lower return. When an investor who owns a stock (or other underlying asset) uses a collar strategy, the investor knows that the return can be no higher than the return defined by strike price on the call, and no lower than the return that results from the strike price of the put. Symmetric Collar A symmetric collar is one where the initial value of each leg is equal. The product has therefore no cost to enter. Structured collar A structured collar describes an interest rate derivative product consisting of a straightforward cap, and an enhanced floor. The enhancement consists of additions which increase the cost of the floor should it be breached, or other adjustments designed to increase its cost. It can be contrasted with a symmetric collar, where the value of the cap and floor are equal. It attracted criticism as part of the Financial Conduct Authorities' review of mis-sold bank interest rate products. References Hull, John (2005). Fundamentals of Futures and Options Markets, 5th ed. Upper Saddle River, NJ: Prentice Hall. . Szado, Edward, and Thomas Schneeweis. "Loosening Your Collar: Alternative Implementations of QQQ Collars". Isenberg School of Management, CISDM. University of Massachusetts, Amherst. (Original Version: August 2009. Current Update: September 2009). Options (finance) Investment Financial risk management