I have read that ina collar the strike rate on the floor must be less than the strike on the cap.
I dont see it why is it so ALWAYS?
Anyone knows why?
Thanks in advance!
I put the floor below the ceiling.
But, could I take a reverse strategy on a collar? One from I would benefit by having a higher strike rate on the floor greater than the strike on the cap.
If you have a long position in a security (a stock, say), a collar comprises:
Buying a put at one strike price, usually lower than the current stock price
Selling a call at a higher strike, usually above the current stock price, and often chosen so that the call premium and the put premium are equal (a zero-cost collar)
If you have a short position is a security (a stock, say), a collar comprises:
Buying a call at one strike price, usually higher than the current stock price
Selling a put at a lower strike, usually below the current stock price, and often chosen so that the call premium and the put premium are equal (a zero-cost collar)
In either case, the lower strike is the floor, the higher strike is the ceiling (cap).
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