Problem:
Currently the stock is selling for $38.25.
A call to buy the stock at $40 is selling for $3.38 and a put to sell the stock at $35 is selling for 1.94.
How could you use a collar to reduce your risk of loss from a decline in the price of the stock?
Verify that the collar does achieve this objective.
Explain comprehensively and also provide step by step solution.