Methods and Analysis of Collar Strategies

Abstract

An equity portfolio with a collar strategy consists of a long position in the underlying index together with long put options for insurance and short call options to mitigate the cost of insurance or enhance the return. Using the S&P/ASX 200 index, this study investigates the performances of fourteen collar strategies and for comparison two protective put strategies. We consider two simulations: one with traded option market data and the other utilizing Black-Scholes option prices. The investigation period is 2008−2016 and we consider three sub-periods representing different market conditions. The active collar strategies considered follow those introduced by Szado & Schneeweis (2010a). As a summary of our results, the best performing strategies are a protective put and a zero-cost collar.