The advantage of a collar over a cap is
A)it lowers the out-of-pocket cost
B)it offers the possibility of greater returns
C)it eliminates the risk
D)it has lower transaction costs
E)none of the above

Question

Quizplus · Accepted Answer

A collar strategy, which involves buying a put option and selling a call option, can lower the out-of-pocket cost compared to buying a cap alone, which is simply purchasing a call option to limit the upside price movement.

The Advantage of a Collar Over a Cap Is