EURO iSTOXX^® 50 Collar

The EURO iSTOXX^® 50 Collar Index aims to replicate a hedging strategy on the EURO STOXX 50^® using an option collar. The strategy consists of the daily purchase of a fraction of two quarterly put options with expiry dates 12 and 15 months in the future, respectively, and the daily sale of a fraction of two to six monthly call options with expiry dates 1 and 2 months in the future, while going long on the underlying EURO STOXX 50^®. Each option stays in the option portfolio until its expiry. The quantity of options to be bought and sold daily is balanced in order to be in average long one put and short one call.
This option collar aims to implement a defensive strategy to “smooth down” the EURO STOXX 50^® and reduce volatility. It provides long-term downside protection thanks to the long position on put options. Although the short position on call options prevents the strategy from recording large gains, their short expiry time (1 and 2 months) minimizes the potentially missed profits.

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