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Zero cost collar
Zero Cost Collar is a paper hedge agreement designed to keep your fuel prices within an agreed price range. Also known as cap and floor.
Three good reasons to use this strategy:
- Rising fuel prices would seriously undermine your business
- You would like to benefit from falling prices after having fixed your maximum fuel prices
- You would rather establish a floor level than pay an upfront cap premium
| Benefits | Disadvantages |
| Protection from price increases | Opportunity loss when prices fall |
| Flexibility in physical supply | Potential basis risk |
| No upfront premium | Margin calls |