Zero Cost Collar

Is a transaction which has little or zero cash outlay or cost for the initiating person. Often, a security is held and some protection is sought via a hedging transaction. One example, would be the purchase of an out-of-the-money put (debit) and the sale of an out-of-the-money call (credit). Here, the premiums for the debit and credit are nearly the same. Therefore, there would be little or no cost for the person seeking the hedge. However, this position places a cap on the potential reward for holding the underlying asset. Essentially, the protection does not kick-in until the price of the underlying instrument goes below the exercise price for the put.

Similar financial terms

Zero-coupon bonds
The holder of a zero-coupon bond realizes interest by buying the bond at a discount to its principal value. These bonds made their debut in the U.S. bond market in the early 1980s.

Zero-coupon interest rate
The interest rate that would be earned on a bond that provides no coupons.

Zero-balance account
A zero-balance account (ZBA) is a checking account in which zero balance is maintained by transfers of funds from a master account in an amount only large enough to cover the checks presented.

Zero-base budgeting
The zero-base budgeting (ZBB) method disregards the previous year's budget in setting a new budget, since circumstances may have changed. Each and every expense must be justified in this system.

Zero-beta portfolio
A zero-beta portfolio is constructed to have zero systematic risk, similar to the risk-free asset, that is, having a beta of zero. (i.e. in most cases, we assume the beta of debt to be zero).

Zero-bracket amount
The standard deduction portion of income which is not taxed for taxpayers choosing not to itemize deductions.

Zero-coupon convertible
A zero-coupon bond convertible into the common stock of the issuing company after the stock reaches a certain price, using a put option inherent in the security. It might as well refer to zero-coupon bonds, which are convertible into an interest bearing bond at a certain time before maturity.

Zero-investment portfolio
A zero-investment portfolio consists of zero net value because of a balanced establishment between long and short position, usually in the context of an arbitrage strategy.

Zero-minus tick
Sale that takes place at the same price as the previous sale, but at a lower price than the last different price. Opposite of zero-plus tick.

Zero prepayment assumption
The assumption of payment of scheduled principal and interest with no payments.

Zero-plus tick
A zero-plus tick is a common name for listed equity securities whose the current transaction is at the same price as the preceding trade, but higher than the preceding trade at a different price. Antithesis of zero-minus tick.

Zero-sum game
A game wherein one player can only gain at the expense of another player.

Zero-one integer programming
An analytical method that can be used to determine the solution to a capital rationing problem.

Agency costs
The cost of resolving the agency problem. These might include stock options and bonus schemes to managers.

Transactions costs
The transactions costs are the expenses to the execution of a trade. It includes the commissions plus the difference between the price obtained and the midpoint of the bid-offer spread.

Storage costs
The cost of storing commodity.

Cost of sales
The costs associated with generating reported sales, including merchandise, direct labor, and other costs attributed to current sales activity.

Direct costs
Costs related directly to sales.

Dollar cost averaging
A system of investing in which an unchanging dollar amount is invested at regular intervals, regardless of share price.

Accelerated cost recovery system (ACRS)
Schedule of depreciation rates allowed for tax purposes.

Agency cost view
The argument that specifies that the various agency costs create a complex environment in which total agency costs are at a minimum with some, but less than 100%, debt financing.

All-in cost
Total costs, explicit and implicit.

Weighted average cost of capital
The weighted average cost of capital (WACC) is the expected return on a portfolio of all the firm's securities when debt, equity and tax shields are taken into account. Used as a hurdle rate for capital investment.

Variable cost
A cost that is directly proportional to the volume of output produced. When production is zero, the variable cost is equal to zero. A variable is a cost of producing the product which a company sells. It would include such items as materials and labor that go directly into producing the shipped item. Another term for this is direct cost. These costs are usually shown directly under revenues on an income statement as the first costs associated with producing the revenues that are recorded.

True interest cost
For a security such as commercial paper that is sold on a discount basis, the coupon rate required to provide an identical return assuming a coupon-bearing instrument of like maturity that pays interest in arrears.

Trading costs
Costs of buying and selling marketable securities and borrowing. Trading costs include commissions, slippage, and the bid/ask spread. See: transaction costs.

Sunk costs
Costs that have been incurred and cannot be reversed.

Shortage cost
Costs that fall with increases in the level of investment in current assets.

Search costs
Costs associated with locating a counterparty to a trade, including explicit costs (such as advertising) and implicit costs (such as the value of time).

Round-trip transactions costs
Costs of completing a transaction, including commissions, market impact costs, and taxes.

Replacement cost
Cost to replace a firm's assets.

Opportunity costs
The difference in the performance of an actual investment and a desired investment adjusted for fixed costs and execution costs. The performance differential is a consequence of not being able to implement all desired trades. Most valuable alternative that is given up.

Opportunity cost of capital
Expected return that is foregone by investing in a project rather than in comparable financial securities.

Net financing cost
Also called the cost of carry or, simply, carry, the difference between the cost of financing the purchase of an asset and the asset's cash yield. Positive carry means that the yield earned is greater than the financing cost; negative carry means that the financing cost exceeds the yield earned.

Market timing costs
Costs that arise from price movement of the stock during the time of the transaction which is attributed to other activity in the stock.

Market impact costs
Also called price impact costs, the result of a bid/ask spread and a dealer's price concession.

Bankruptcy cost view
The argument that expected indirect and direct bankruptcy costs offset the other benefits from leverage so that the optimal amount of leverage is less than 100% debt finaning.

Carring costs
Costs that increase with increases in the level of investment in current assets.

Cost company arrangement
Arrangement whereby the shareholders of a project receive output free of charge but agree to pay all operating and financing charges of the project.

Cost of capital
The required return for a capital budgeting project.

Cost of funds
Interest rate associated with borrowing money.

Cost of lease financing
A lease's internal rate of return.

Cost of limited partner capital
The discount rate that equates the after-tax inflows with outflows for capital raised from limited partners.

Cost-benefit ratio
The net present value of an investment divided by the investment's initial cost. Also called the profitability index.

Avoided cost
In context of project financing, the capital and expense that would have to be spent if the project did not proceed.

Replacement cost
What it would cost today to replace a company’s existing assets.

Fixed costs
Production expenses that are independent of the level of output. Fixed costs could include debt repayments, security costs and marketing and administration costs.

Collar
An upper and lower limit on the interest rate on a floating-rate note.

Blue-collar worker
A blue-collar worker is a working class employee who performs manual or technical labor, such as in a factory or in technical maintenance "trades", in contrast to a white-collar worker, who does non-manual work generally at a desk. This term has a stereotypical connotation in American English, based on historical perspective. Originally it referred to the dress codes of workplaces. Industrial blue-collar workers formerly, and to a large extent still, wear "work clothes" with the shirts of a n ...

Pink-collar worker
A pink-collar worker does work traditionally mostly done by women. This includes secretarial work, typing, and work as a telephone operator. The term "pink-collar" is intended to parallel "white-collar" and "blue-collar". Women in 1950s offices usually wore bright shirts and pink was a popular color, thus entering the workforce colorwheel. So-called pink-collar jobs are secondary labour market jobs predominantly filled by women. These are jobs that are low in status and pay, and have limited ...

White-collar worker
White-collar workers perform tasks which are less "laborious" yet often more highly paid than blue-collar workers, who do manual work. They are salaried professionals (such as some doctors or lawyers), as well as employees in administrative or clerical positions. In some studies managers are considered as part of the white-collar worker grouping, in others they are not. The name derives from the traditional white, button down shirts worn by workers of such professions. Formerly a minority in ...

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TSR

Total Shareholder Return (TSR) represents the change in capital value of a listed/quoted company over a period (typically 1 year or longer), plus dividends, expressed as a plus or minus percentage of the opening value.Due to its nature, TSR can not be calculated at divisional level (Strategic Business Unit) and below. And also due to its nature, TSR cannot be observed for privately held companies. ...


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