A hedging structure that combines two options: buying one (usually a put or a call) and selling another, with both options having the same expiration but different strike prices. The goal is to create a range of protection while reducing or eliminating the cost of the hedge. 

For example, a company expecting to receive USD in three months might use a collar to protect against a fall in the exchange rate. It could buy a put option at 1.10 (setting a minimum rate) and sell a call option at 1.15 (agreeing to cap upside if the dollar strengthens too much). If the currency stays between those two levels, neither option is exercised, and no premium is lost. If it moves outside the range, the company is protected on one side and gives up the upside on the other. 

Collars are popular because they can provide zero-cost hedging-the premium earned from selling one option offsets the cost of buying the other. They’re often used in cash flow hedging and are closely related to strategies like Zero-Cost Collars.