zero cost collar

Here is the surprising part. A strategy called zero cost can still cost you a fortune, just not in cash. What you pay with is upside, the very gains you might have enjoyed if your shares had shot up.

A zero cost collar works like this. You own shares, say in a company listed on the Nigerian Exchange. You buy a put option, which gives you the right to sell your shares at a floor price if they crash, protecting you from disaster. Normally you would pay a premium for that protection. But to offset that cost, you also sell a call option, which obliges you to sell your shares at a ceiling price if they rise that high, and the premium you receive for selling that call cancels out the premium you paid for the put. Net cash spent, zero. That is the collar, a floor and a ceiling locked around your shares.

Think of a Nigerian investor holding a large stake in a bank stock after a good run. She is nervous about a downturn but does not want to sell yet, maybe for tax or loyalty reasons. She sets up a zero cost collar. Now if the stock crashes, her put protects her below the floor. But if the stock rallies hard, her gains stop at the ceiling because she is obligated to sell there.

A diaspora professional in London holding shares in a UK listed company before a big vote or earnings announcement might do the same thing, locking in a safe range without spending fresh money, while still holding onto the shares themselves.

This is not a strategy for someone chasing riches. It is for someone protecting riches already made, willing to trade the dream of a moonshot for the comfort of a guaranteed range.