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Collars


Collars allow a producer or consumer to lock in a range of prices. They are the combination of a call and put. This is done to create boundaries, which the price will stay between. A commodity consumer would buy a call and sell a put to establish a range, which prices stay within. A commodity producer would buy a put and sell a call to create a range of price protection. A collar offers price protection within a known range. In addition Collars are typically structured in a way that the premium is reduced or eliminated.

Associated Bank can help organizations utilize the benefits from using collars:

  • Reduced or eliminated premiums.
  • Protection from increasing or decreasing prices.
  • Increased flexibility in planning.
  • Multiple structures available

Here is how a Collar works:

  • Work with Associated Bank to determine the level of protection you need.
  • Usually structured that there is no upfront premium.
  • For a consumer if the market price settles above the call limit Associated Bank makes a payment to you. If the market price settles below the put limit you make a payment to Associated Bank. If the market price settles above the put limit, but below the call limit there is no payment by either party.
  • For a producer if the market price settles below the Put limit Associated Bank makes a payment to you. If the market price settles above the call limit you make a payment to Associated Bank. If the market price settles above the put limit, but below the call limit there is no payment by either party.

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