A zero cost collar is a form of options collar strategy to protect a trader's losses by purchasing call and put options that cancel each other out. ... The investor buys a protective put and sells a covered call. Other names for this strategy include zero cost options, equity risk reversals, and hedge wrappers.

Is costless collar really costless?

As such, a $130/$110 costless collar may have appeared to be an attractive strategy to some oil consumers. ... As a result, what most consider to be costless collars aren't truly costless, they are just structured such that the premium paid for the long option is offset by the premium received for the short option.

How does a collar hedge work?

A collar position is created by holding an underlying stock, buying an out of the money put option, and selling an out of the money call option. Collars may be used when investors want to hedge a long position in the underlying asset from short-term downside risk.