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Stock Collar - How It Works

The collar limits (10% gain or 5% loss) are established by creating a "no cost collar" - that is, it doesn't cost the investor any additional funds outside the commissions paid to the brokerage.

On a real stock exchange, investors can adjust either of these limits (thus changing the "spread"), but that may result in additional costs.

A collar works by the owner of a stock selling a CALL option (which gives another investor the right to purchase the stock at a specific price if it rises) and using the money from that sale to buy a PUT option (the right to sell the stock at a specific price to another investor if it drops).

In your event, you don't need to find these other investors to sell the call option or buy the put option - it is done automatically when you tell the trader you want to "collar the position".

Note: A team may only collar one stock at any given time.  You can remove the collar by asking your trader, or by selling the stock.  Once a collar is removed, you may collar a different stock.