What is a collar in financial terms?

A collar is a financial strategy that involves buying a put option and selling a call option on the same underlying asset. This strategy is typically used by investors to limit potential losses while also capping potential gains. By purchasing a put, the investor secures a right to sell the asset at a predetermined price, thereby providing downside protection. Conversely, by selling a call, the investor receives a premium but simultaneously agrees to limit their upside potential to the strike price of the call option sold.

This strategy is often favored by investors who want to manage risk during periods of uncertainty without completely divesting from their position. The collar can effectively create a range within which the asset's price can fluctuate, allowing for stability and predictability in investment performance.

The other options provided do not accurately describe a collar. Implementing debt restructuring relates to modifying the terms of outstanding debt obligations, which does not involve options trading. Hedging against currency fluctuations involves strategies to protect against adverse price movements in currency exchange rates, not the buying and selling of options. Lastly, increasing share buybacks refers to a company buying back its own shares from the marketplace, a practice that does not involve options and does not offer the same risk management benefits as a collar.