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 the stock is wrapped in a collar, any loss or gain is limited to the minimum and maximum range of the collar, no matter how much the stock actually falls or rises.
Collaring can reduce portfolio volatility to bondlike 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 May 16, 2012 analyst report, "The Collar Fund will exhibit near-bondlike returns."