File Name: Exotic Options – Option Collar
Location: Modeling Toolkit | Exotic Options | Options Collar
Brief Description: Computes the call-put collar strategy, that is, to short a call and long a put at different strike prices such that the hedge is costless and effective
Requirements: Modeling Toolkit
The call and put collar strategy requires that one stock be purchased, one call be sold, and one put be purchased (Figure 67.1). The idea is that the proceeds from the call sold are sufficient to cover the proceeds of the put bought. Therefore, given a specific set of stock price, option maturity, risk-free rate, volatility, and dividend of a stock, you can impute the required strike price of a call if you know what put to purchase (and its relevant strike price) or the strike price of a put if you know what call to sell (and its relevant strike price).
Figure 67.1: Creating a call and put collar strategy
