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