A combination of a zero-cost collar (an equity collar, or a combination of an equity put and an equity call) with a margin loan. This structure hedges a significant amount of the downside risk of the underlying stock, while providing a stable source of leverage (the holder can borrow money to diversify into other assets). By establishing a collar, a minimum and maximum boundaries for market value are created around an investor’s equity position until the expiration of the options.

The zero-cost collar is structured in a way that the premium received from the sale of the call option entirely offsets the amount paid for the purchase of the put option. The owner of equity posts shares with a dealer as collateral, and receives a zero-coupon loan from that dealer. The owner of equity purchases an equity collar and simultaneously take the loan collateralized by the equity. In this sense, the owner of the shares is able to obtain cash without actually selling the shares.

The key advantage of this structure is embodied in the downside protection it provides, whilst allowing the holding to retain ownership of the stock. However, that comes at the expense of potential loss of partial upside participation.