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Straddle vs collar

Forums › Ask ACCA Tutor Forums › Ask the Tutor ACCA AFM Exams › Straddle vs collar

  • This topic has 1 reply, 2 voices, and was last updated 7 years ago by John Moffat.
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  • February 25, 2018 at 10:54 am #438855
    boma77
    Member
    • Topics: 70
    • Replies: 97
    • ☆☆

    Dear Tutor,

    I have difficultiy in undertanding the difference between a straddle and option collars.
    Could you plase help.

    Thank you.

    February 25, 2018 at 11:07 am #438862
    John Moffat
    Keymaster
    • Topics: 57
    • Replies: 54668
    • ☆☆☆☆☆

    A collar is when you have a put and a call option in such a way as to fix a maximum and minimum interest rate (a cap and a floor).

    It becomes a straddle when the put and call option are both at the same strike price (which then effectively fixes the interest rate).

    Please do read my article on collars:
    https://opentuition.com/articles/p4/interest-rate-collars/

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  • The topic ‘Straddle vs collar’ is closed to new replies.

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