Collars as Bond Alternative
Collaring is a stock and option strategy that involves buying a stock and "collaring" that stock with the purchase of a put option and the sale of a covered call option. While a stock is wrapped in a collar, any loss or gain is limited by the minimum and maximum price range of the collar, no matter how much the stock actually falls or rises.
Collars can reduce portfolio volatility to bond-like levels. Our monthly standard deviation is about 1/4th the S&P 500 and only slightly higher than Barclay's Aggregate Bond Index. Morningstar's Alternative Fund Research views collars as a bond alternative and featured our collar strategy on a bond alternative panel at the 2011 Morningstar Investment Conference. According to their November 20, 2009 analyst report on our previous no-load mutual fund, "This fund will not yield equity returns but should outperform bonds with similar risk." Also, collars are uncorrelated to bonds so if interest rates rise, collared stocks may fare better than bonds.