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Options Trading for the Institutional Investor: Managing Risk in Financial Institutions by Michael C. Thomsett

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8. The Dividend Collar

Every trader seeks the perfect combination of low risk and high yield. This normally proves to be impossible—but one strategy combines the defensive risk management attributes of options with the yield advantages of high-dividend stocks. The dividend collar is a three-part hedge. Properly set up, it can produce double-digit annualized returns while eliminating the market risk associated with stock ownership.

The dividend collar is a truly conservative strategy. It eliminates all market risk of owning stock and sets up a three-part hedge:

Image Hedging stock risk is accomplished by purchasing one put per 100 shares. Any decline ...

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