Collar Hedge

A collar hedge is a risk management strategy that involves combining two options contracts to limit potential losses and protect against volatility in the price of an underlying asset. It is commonly used by investors to establish a price range within which they can buy or sell an asset while limiting downside risk. In a collar hedge, an investor simultaneously holds a long position in the underlying asset (such as stocks) and combines it with two options contracts: a protective put and a covered call.