> For the complete documentation index, see [llms.txt](https://docs.bima.money/llms.txt). Markdown versions of documentation pages are available by appending `.md` to page URLs; this page is available as [Markdown](https://docs.bima.money/vault/what-is-a-collar.md).

# What is a collar?

A collar is two option positions held together against your Bitcoin:

* **Downside protection is bought** this costs premium.
* **Upside above an agreed level is sold** this earns premium.

When the second is structured against the first, the premium earned covers the protection *and* the cost of the capital released to you. That is why there is no interest rate.

<figure><img src="https://1150339483-files.gitbook.io/~/files/v0/b/gitbook-x-prod.appspot.com/o/spaces%2FuV0XpSBB66aR52DO5D6k%2Fuploads%2FrJUAfYOGAvNATebbXXqI%2Fcollar-payoff.svg?alt=media&amp;token=b84166e2-7b80-4232-9088-a800f51b47ae" alt=""><figcaption></figcaption></figure>

## The 2 strikes

<table><thead><tr><th width="230">Strike</th><th>What it does</th></tr></thead><tbody><tr><td><strong>Put strike</strong><br><em>below your deposit price</em></td><td>Sets the floor of the protected zone. Below it, your loss stops tracking Bitcoin down.</td></tr><tr><td><strong>Call strike</strong><br><em>above your deposit price</em></td><td>Sets the point above which upside is given up. That upside is what funds the financing.</td></tr></tbody></table>

Both are fixed when your vault's deposit window closes and the collar is placed, and neither can change during the term.

## The 3 zones

<figure><img src="https://1150339483-files.gitbook.io/~/files/v0/b/gitbook-x-prod.appspot.com/o/spaces%2FuV0XpSBB66aR52DO5D6k%2Fuploads%2FwSNnFti5S2jN0IRJT5W7%2Fcollar-zones.svg?alt=media&amp;token=2ccd6f9e-1304-4db7-b85d-1c101f9a5a92" alt=""><figcaption></figcaption></figure>

{% stepper %}
{% step %}

### Protected zone below the put strike

The vault owns downside protection. Losses beyond this level are limited: your position does not keep falling one-for-one with Bitcoin.

This is a genuine feature, and it is what separates the product from an ordinary loan. It is **not** a guarantee of your capital the fall between your deposit price and the put strike is still yours.
{% endstep %}

{% step %}

### Participation zone between the strikes

You retain full Bitcoin exposure. If BTC finishes anywhere in this range, you receive all of your collateral back and the financing cost you nothing at all.

This is the range the product is built around and the most common outcome over a twelve-month term.
{% endstep %}

{% step %}

### Financing zone above the call strike

A portion of future upside is exchanged for lower borrowing costs. Gains above the call strike fund the financing; everything below it remains yours.

{% hint style="warning" %}
If Bitcoin runs far past the call strike, you will have done better simply holding it unencumbered. That is the honest shape of the deal, and it is what makes 0% possible.
{% endhint %}
{% endstep %}
{% endstepper %}

## A worked illustration

On a 1 BTC deposit at $100,000, with a $75,000 put strike and a $120,000 call strike:

| BTC at maturity | Zone          | Your outcome                                                |
| --------------- | ------------- | ----------------------------------------------------------- |
| $60,000         | Protected     | Loss bounded at the put strike rather than tracking to $60k |
| $85,000         | Participation | The fall is yours protection has not been reached           |
| $100,000        | Participation | Breakeven. Full collateral back, financing cost nothing     |
| $115,000        | Participation | The full $15,000 gain is yours                              |
| $150,000        | Financing     | You keep gains up to $120k; above that funds the financing  |

{% hint style="info" %}
The strikes above are an illustration, not a quote. Actual levels are set per vault against market conditions when the deposit window closes, and are published before you claim any USDC.
{% endhint %}

## Where the strikes come from

Strike levels depend on conditions on the day your vault is priced principally the implied volatility of Bitcoin options at that tenor. Higher volatility generally means more premium available, which supports better levels.

This is why two monthly vaults can carry different protection and cap levels. Yours are fixed by the vault you joined and do not move with the market afterwards. See [Vault Schedule](file:///8003494/introduction/vault-schedule.md).

## How the collar settles

{% hint style="info" %}
**Coming soon.** The settlement mechanics exactly what is returned to you in each zone, and how the collar outcome is netted against your USDC repayment  will be published here before the first vault reaches maturity.
{% endhint %}