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Interest rate collar

Forums › Ask ACCA Tutor Forums › Ask the Tutor ACCA AFM Exams › Interest rate collar

  • This topic has 1 reply, 2 voices, and was last updated 6 years ago by AvatarJohn Moffat.
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  • September 28, 2019 at 3:55 pm #547553
    Avataraamir2111
    Participant
    • Topics: 123
    • Replies: 85
    • ☆☆☆

    Dear Tutor,

    Just a small question (Which may sound silly), but when we as borrower are setting a collar, the strike price at which we buy a ‘put’ option has to be lower than the strike price at which we sell a ‘call’ option, isnt it?

    Secondly, if we buying a Sept ‘Put’ option, do we sell sept ‘call’ options itself? or sell ‘call’ options of any other months as well to reduce the premium cost?

    September 29, 2019 at 9:49 am #547598
    AvatarJohn Moffat
    Keymaster
    • Topics: 57
    • Replies: 54839
    • ☆☆☆☆☆

    Yes – if we are a borrower then we will buy a put option at a lower strike price than the strike price at which we sell a call option.

    We always buy and sell options for the same month.

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