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Hello sir can you please tell me how to choose the exercise price of collar in call option and put option
As I explain in my free lectures on collars, there is no ‘best’ combination of exercise prices. As the cap and floor change, so does the net cost of the collar.
Your job in the exam is to prove you understand how collars work, and so choose any two (sensible) exercise prices from this available and you will get the marks.
(By ‘sensible’ I mean that obviously, if they are borrowing money, you need exercise prices such that the cap is higher than the floor.)
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