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The main disadvantage is that the benefit from any upside movement in interest rates is capped by the sale of the call option. With just the put option, the full upside benefit would be realised.
Please explain it i’m lil bit confuse…,
What you have written is true if the company is depositing money (it would be the reverse if they were borrowing money).
Just using a put option would limit the minimum interest rate, but they would get all the benefit of any increase in rates.
Selling a call option as well (and therefore creating a collar) would reduce the net premium cost, but would then limit the maximum interest rate they could receive.
I do suggest that you watch my free lectures on interest rate options and on collars, because I do explain in detail (with examples) and I obviously cannot type it all out here 🙂
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