Using the proceeds from the simultaneous sale of a floor to finance the purchase of a cap is to open a position called a
A)open interest.
B)pull-to-par.
C)cap.
D)floor.
E)collar.

Question

Quizplus · Accepted Answer

Using the proceeds from the simultaneous sale of a floor to finance the purchase of a cap creates a collar, which is the simultaneous purchase of a cap and sale of a floor on the same underlying asset with the same expiration date. The collar limits both the potential gains and losses of the underlying asset.

Using the Proceeds from the Simultaneous Sale of a Floor