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Collar

Forums › Ask ACCA Tutor Forums › Ask the Tutor ACCA AFM Exams › Collar

  • This topic has 2 replies, 3 voices, and was last updated 2 years ago by John Moffat.
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  • Author
    Posts
  • June 8, 2021 at 7:48 pm #623987
    aamir2111
    Member
    • Topics: 123
    • Replies: 85
    • ☆☆☆

    Dear tutor,

    In case of borrower, how do we select which strike prices to buy put and sell call for collar?

    June 8, 2021 at 10:01 pm #624021
    shannonmcnamara
    Member
    • Topics: 13
    • Replies: 14
    • ☆

    Can you also help to clarify setting up a collar if I’m depositing funds? Confused myself

    June 9, 2021 at 8:45 am #624101
    John Moffat
    Keymaster
    • Topics: 56
    • Replies: 53175
    • ☆☆☆☆☆

    It partly depends on how many exercise prices are available because if there are more than two you are able to suggest more than one collar.

    A borrower will buy a put option and sell a call option. The strike price for the call option will have to be higher than that for the put option (in order to fix both a maximum and a minimum effective interest rate).

    A depositor will buy a call option and sell a put option.

    Have you both watched my free lecture on interest rate options and collars (and read our free lecture notes on collars)?

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