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this question wants u to design collar(s) given 3 different strike prices .. a lender’s collar.
in the answer, he lists 3 different collars and i cant understand how he got them.
is there any logic or a rational way to think how to eliminate possibilities? 3 options means there can be several combinations and lots of time wasted
thanks
Because they are depositing money, to create a collar they need to buy a call option and sell a put option.
Also, the strike price for the call option will need to be higher than the strike price for the put option.
There are only three combinations of strike prices that achieve that 🙂
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