On more and more corporate presentations, I see references to “collars.” What are collars?
From Sempra Securities: A collar, also referred to as “min-max strategy,” is a zero or low cost hedging strategy that assures the Oil Producer a minimum / maximum price range for future oil sales. Under a collar contract, the minimum possible sale price is equal to the floor price and the maximum possible sale price is equal to the ceiling price. For prices within this range, the Producer achieves the market price. The contract is normally financially settled and often covers several pricing periods.There is usually no up-front premium payment. Under a standard zero cost collar contract, the Producer can specify either the “floor” or the “ceiling” price level. The other price level is calculated by SET to ensure a zero-premium expense. If the Producer wishes, it can specify both price levels, but then it may incur some premium expense or income. The Producer gains complete price protection from any prices below the floor price. However, in exchange for zero up-front premiums, any benef
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