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How do we decide that at which strike rate to sell put and buy call (borrower)?
I was looking at different questions and one thing common in all is that lowest strike price is selected for put and the other one for calls
i just find problem in identifying strike price to sell put and buy collar because the strike price which is selected (as per above statement) doesnt have the lowest cost of borrowing as per the options.
Since a borrower wishes to fix a maximum interest rate but accepts a minimum rate in order to reduce the net premium, the collar will have to involve choosing a strike price for the put lower than the strike price for the call.
Depending on how many strike prices are available, there are likely to be several possible collars and you should discuss all of them. There is no ‘best’ collar because a lower net premium will mean accepted a higher minimum rate of interest.
Assuming that you have watched my free lecture on interest rate options, then my note on collars will help you:
https://opentuition.com/articles/p4/interest-rate-collars/
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