Zero Cost Collar

A zero cost collar is a strategy that involves holding a long position in an underlying asset, such as a cryptocurrency like ETH, and simultaneously purchasing both a put option and a call option on that same underlying asset, with the cost of the put option being offset by the premium received from selling the call option. This can be a useful way to protect against potential losses from the underlying asset without incurring any upfront costs.

For example, a company that holds a large quantity of ETH and is concerned about the potential for losses if the price of ETH falls could implement a zero cost collar strategy by purchasing a put option with a strike price below the current market price of ETH, and simultaneously selling a call option with a strike price above the current market price of ETH. The premium received from selling the call option can be used to offset the cost of purchasing the put option, resulting in a net cost of zero. This would give the company the right to sell its ETH at the strike price of the put option if the price of ETH falls, while still retaining the potential for additional gains if the price of ETH rises. This can help the company to protect its revenues without incurring any upfront costs.