An equity collar that involves obtaining a bank loan by the owner of the underlying equity (shares), collateralized by the underlying shares. This position is constructed out of put and call options (the collar) that limit its losses if the underlying shares fall below a certain level while also limiting its upside potential. Collars are instrumental for investors who seek to hedge a long position in an underlying asset from short-term downside risk.

The funded equity collar can involve borrowing a company’s shares by a third party and funding the purchase of these shares with a loan extended by a bank to the purchaser.