Collar Advance
Cache lets you access liquidity without a risky line-of-credit on your stock.
With our unique Collar Advance, you’ll borrow what you need for life’s big purchases—all with deferred taxes and certain protection against market turbulence.
Borrow up to $900K for every $1M in stock.
With a Collar Advance, generally known as a variable prepaid forward contract, you get instant liquidity on your stock up to 90%—much higher than a typical margin loan. The cash generated can be used for any purpose, including a home purchase.
Actual liquidity percentage depends on the floor level, cost of the collar, and on interest rates. Implied interest is capitalized and rates are typically 0.5%-1.0% higher than comparable maturity treasury securities.
Defer up to $380K for every $1M in stock.
Generated liquidity is not considered a taxable transaction with a properly constructed collar. The taxes can be deferred until you choose to sell, either at the end of the contract or any subsequent rollovers.
Long-Term Capital Gains tax ranges from 23.8% to 38.4% for high-earners in 2023.
Protect the downside, participate in the upside.
With a 80%–160% collar, for example, you are protected on the downside below 80%, while participating in the upside up to 160%. Unlike other stock loans, you do not need to worry about margin calls or depositing additional collateral.
Minimize regrets if you’re bullish on your stock.
You’ll continue to receive dividends and maintain voting rights. Dividends are not considered qualified dividends. Depending on the date of acquisition, dividends may not receive preferential tax treatment.
Implied Borrow Rate depends on term selected, between 2-5 years, and can range 0.5%-1.0% higher than comparable maturity treasury securities.
Comparisons based on $1M loan from Bankrate or company websites on Sep 15th, 2023.
Subject to change without notice.
Fixed-rate vs Adjustable-rate
Collar Advance, like many mortgage or auto loans, is a fixed-term arrangement. Most other stock-based loans are adjustable-rate instruments.
Capitalized borrow rate
Unlike other stock loans, where the interest accrues over time, the borrow rate is capitalized at the start of a transaction.
Collar Advance is a way to get upfront cash in exchange for a contract to sell your stock at a later date.
The contract can be structured for 2–5 years, and you can roll it forward until you’re ready to sell.
Example of a 2-year collar with 80% floor and 160% cap
CAP
160%
CAP 160%
In this example, investors will forego upside beyond 160%. The maximum gain is capped at 160% of the initial stock value
COLLAR TERM
Length of the contract under which your loan is protected.
CURRENT
PRICE
FLOOR
80%
FLOOR 80%
In this example, investors will maintain at least 80% of holdings value. The maximum loss incurred is 20%
Today
2 YEARS FROM
TODAY
End of Collar term.
If the stock is above the floor price, you can usually roll forward on favorable terms. You can also end the contract by settling with cash or stocks.
First, pick a collar
A collar is a cost-efficient way to manage your risk exposure. You'll be protected below a lower limit, called a floor, and you'll participate till an upper limit, called a cap.
For example, a 2-year 80% – 160% collar protects you on the downside at 80% of the current stock price, limiting your loss to 20%, for a participation in the upside till 160% of the current stock price for the next two years.
If your holding goes down in value, you won’t face a margin call.
Example of a 2-year collar with 80% floor and 160% cap
CAP 160%
Maximum upside if shares appreciate in value.
FLOOR 80%
Maximum downside if shares go down in value.
COLLAR
Contract under which your investment is protected.
End of Collar term.
If the stock is above the floor price, you can usually roll forward on favorable terms. You can also end the contract by settling with cash or stocks.”
Then borrow based on today’s price
Get liquidity at a rate much higher than a margin loan. Typical contracts give liquidity at 70% to 90% of the value of the collateral. A competitive auction across multiple trusted banks ensures the best pricing and parameters.
Example of a 2-year collar with 80% floor and 160% cap
CAP 160%
Maximum upside if shares appreciate in value.
FLOOR 80%
Maximum downside if shares go down in value.
COLLAR
Contract under which your investment is protected.
End of Collar term.
If the stock is above the floor price, you can usually roll forward on favorable terms. You can also end the contract by settling with cash or stocks.”
Competitive pricing
A competitive blind auction across major Wall Street banks ensures the most favorable economics for you, as there can be variance amongst banks on pricing and the total amount received.
Experienced partners
We've built our product in partnership with known leaders that have facilitated $15B+ of concentrated equity hedging solutions.
Rigorous process
Prior to any auction, we independently model each contract, which creates an independent, wholly-unbiased perspective on price, thus leading to higher consistency.
Direct access
We’re the first company to offer this advanced financial instrument directly to consumers. We even simplified its name for you — it used to be ”variable prepaid forward contracts.”
Seamless transactions
We’re developing technology to transform an antiquated workflow into a smooth and easy online experience.
Where can I learn more about how a Collar Advance transaction works?
Collar Advance transactions are traditionally offered by major banks under various names like Prepaid Variable Forwards, PRISM, and others. You can read more about it on Investopedia and other great online resources.
At Cache, we prefer to use the term Collar Advance because it more accurately describes the mechanics of the transaction and is easier to understand.
What are the eligibility requirements for a Collar Advance transaction?
Requirements vary, but most banks generally serve Qualified Purchasers only due to the manual nature of an over-the-counter trade. (Eligibility requirements are established by banks that act as counterparties for Collar Advance transactions.)
What are the benefits of using Cache as your Collar Advance brokerage?
Cache lets you compare offers from multiple banks and accept the deal that best fits your needs. Instead of working directly with one provider, we offer a wholly-unbiased, blind auction across multiple competing banks that delivers the best obtainable economic outcome for you.
If I participate in a Collar Advance transaction, where are my stocks and money held?
Once you've found a deal that meets your needs, an account will be opened at the bank you've chosen.
Who acts as the lender in a Collar Advance transaction?
Typical counterparties include large multi-national investment banks with significant trading volume.
How much liquidity will I be eligible for?
It depends. The floor price for the collar transaction is usually between 70% and 90%, and the floor price determines the limit you can withdraw. In addition, the interest rate and any transaction fees are capitalized from the upfront liquidity.
Will I need to make regular interest payments with a Collar Advance transaction?
No, the implied interest is deducted from the payout at the beginning of the transaction.
Is it possible to cancel a Collar Advance transaction before its term limit?
Collar Advance contracts are custom-built, fixed-term option transactions. Investors are generally expected to remain in their contracts until agreed-upon expiration dates. Investors may request early termination, which entails premature liquidation of option positions, and subjects investors to unpredictable and potentially unfavorable pricing conditions. Investors may face losses in volatile markets with drastic swings in option premiums. For more information, please speak to a member of the Cache team or consult a financial advisor.
How does a rollover work after the initial term?
After the initial term, you can roll over to a new contract based on where the stock price ends up. As long as the stock rises, you can usually roll forward on favorable economic terms.
I'm a bit confused. Can I speak to someone?
Absolutely. Please fill out the form and we’ll reach out to explain everything.
Collar Advance relies on a fixed-term options contract that may be difficult to unwind in volatile markets. Investors may face potential losses when trying to prematurely exit contracts, particular during challenging or unfavorable market conditions. Although Collar Advance offers certain downside protections, investors may still face absolute losses if share prices decline over time. In addition, investors risk foregoing gains beyond the cap levels set in the contracts. Dividends received on stocks pledged under Collar Advance contracts are not considered qualified dividends and may not receive preferential tax treatment.
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