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Hi john
I’m in the middle of P4 pilot paper and q2 part b for the collar, I don’t understand why they have exercised the sell call part If it’s creating a loss ($48100) I worked out the same number but am i missing something obvious or is this an error? The buy put for the same part was not exercised..
It is not the seller who has the choice of exercising – it is the buyer of the option. It creates a profit for them and so they will exercise.
(The lectures and also the separate note that I have uploaded will help you with collars – you can find them linked from the main P4 page)
When use Interest Collar, I confuse which exercise price should be chosen if i am a borrower, pls. advise?
For a collar you buy a put option at one exercise price and sell a call option at another exercise price.
Depending on how many strike prices are available, then there are several collars that can be created and you need to be able to discuss the all.
I do suggest that you watch the free lectures on interest rate options (collars are explained at the end of the lecture) and also read my separate note on collars. Both are linked from the main P4 page of the website.
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