BUSINESSWEEK ONLINE : JANUARY 15, 2001 ISSUE
FINANCE Zero-Cost Collars 101 An executive at XYZ Corp. hedges his shares. THE COLLAR With shares trading at $100, the executive sells a call option and buys a put option, creating a floor and a ceiling for his shares. The put allows him to sell at $90. The call requires him to sell at $130. GOOD NEWS The price stays between $90 and $130. The options expire unexercised. MORE GOOD NEWS The stock falls to $50. The executive would have lost $50 a share. With the collar, he sells for $90. BAD NEWS The stock soars to $180. The executive would have gained $80 a share. Instead the buyer of the call option buys the executive's stock for $130 a share. _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _					RELATED ITEMS Funny Money, or Real Incentive? CHART: The Value Gap in Stock Options Commentary: Undermining Pay for Performance TABLE: Zero-Cost Collars 101 TABLE: Profiting in a Slump INTERACT E-Mail to Business Week Online

Copyright 2000-2008, by The McGraw-Hill Companies Inc. All rights reserved. Terms of Use   Privacy Notice