Difference between risk reversal and a collar.

CFA Level III
#1

Can someone confirm that a long collar consists of

Long Put , Long Stock and Short call

and a risk reversal consists of

Long Put and Short call. (without long stock)

Is my understanding correct?

The book still refers both as collar.

Thanks,

#2

anyone?

#3

Where is a risk reversal in the curriculum? My understanding is that you can go long a put option and short a call option to create a collar, which can be used to hedge your long equity position.

#4

Reading 19 - Example 6 Question 1.

My understanding is wrong… risk reversal is exactly same as collar as per the example.

Thanks!

#5

Long risk reverse = short collar

#6

are you sure about long/short?

i thought both are same…

#7

Collar = Risk Reversal if not mistaken.

Also, no stock is involved; it’s just options.

#8

They’re the same damn thing. From time to time some authors come up with new buzz words just for the hope of earning some royalty money if they pick up in the industry. Cash-ification®

2 Likes
#9

A collar is just like a bull spread (same payoff diagram), only in the collar you own the underlying.

#10

Would You Look is spot on and to add:

LONG stock position , SELL a risk reversal ( BUY A PUT and SELL A CALL ) = COLLAR

SHORT stock position, BUY a risk reversal (SELL A PUT and BUY A CALL) = opposite of collar