... Ryan Otto of Ellies has taken many zero cost collars.....cents
GCR, as a major shareholder of Ellies Ryan would be wanting to protect his downside. He can do this by buying a put e.g. Ellies trading at spot of 120 cents, he would buy a put for a strike of 100 cents (for instance) and pay a premium of 2 cents (for example). However, he wouldn't want to pay this premium over millions of shares so he would then sell a call for a premium of 2 cents, thus making it a zero-cost collar. The strike price for the call would be worked out so that it is worth a premium of 2 cents e.g. strike could be 135 cents. Thus he gets downside protection but is exposed to risk on the upside. However, as he owns physical shares, his upside risk is negated because he can always sell his shares to cover any financial payout he would have to make if the call was exercised.
