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Sir this collars is giving me a headache , i have 2 questions
1. In the example u gave in article, it was that we were borrowing so had put options and hence we sold call options to create a collar, now my question is that can a collar be only created by selling a call in all the scenarios? What if he have to invest therefore need a call opton?
2. Why would we want to waste our call option by selling it to another person and not take the benefit at the transaction date with our dealer?
A collar always involved having a put and a call.
Which you buy and which you sell depends on whether you are borrowing or depositing.
The reason for selling an option (and therefor limiting our benefit) is in order to receive a premium which reduces the net cost – we have to pay a premium for the option we buy.
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