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If interest rates increase by 0.5% to 3.8%:
Buy put Sell call
Exercise price 96.00 96.50
Futures price 96.02 96.02
Exercise ? No NoQ1: What is the basis in collar hedging to determine whether to exercise or not?
Puts Calls
June premium 0.163 0.581 0.391 0.090
Exercise price 96.00 96.50 96.00 96.50Q2: Why selected “Buy June put at 96.00 for 0.163 and sell June call at 96.50 for 0.090. Premium payable = 0.073 (0.163 – 0.090)” and cannot say for instance “buy June put at 96.50 for 0.581 and sell June call at 96.00 for 0.391?
Do you have a recorded lecture for collars??
Whether we exercise or not is the normal rule for deciding whether or not to exercise options – that in itself is not a collar problem.
Although there is no lecture, I have written a detailed note on how collars work and that should answer your problems.
You can find it here:
https://opentuition.com/articles/p4/interest-rate-collars/
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