Caplet put option years


An interest rate cap is a type of interest rate derivative in which the buyer receives payments at the end of each period in which the interest rate exceeds the agreed strike price. An example of a cap would be optioj agreement to receive a payment for each month the LIBOR rate exceeds 2.5%.Similarly an interest rate floor is optiion derivative contract in which the buyer receives payments at the end of each period in which the interest rate is below the agreed strike price.Caps and floors can be used to hedge against interest rate fluctuations.

caple Both call and put options are simultaneously at the money. For example, if XYZ stock is trading at 75, then the XYZ 75 call option is at the money and so is the XYZ 75 put option. An at-the-money option has yers intrinsic value, but it may still have time value. This financial instrument is primarily usedby borrowers of floating rate debt in situations where short term interestrates are expected to increase. Forhighly leveraged companies or those with an overweighting of short term debt,rate caps are used to manage interest expense and therefore, the profitabilityprofile of the organization.

Rate caps yearrs thus be viewed as insurance,ensuring that the maximum borrowing rate never exceeds the specified caplevel. In exchange for this peace ofmind, the purchaser pays the financial institution a premium.An interest rate floor on the other hand, guarantees alower bound caplet put option years the rate of interest received on an investment.

This may be used in conjunction fxcm metatrader android phone afloating rate note (FRN) to ensure a minim.




Years option caplet put

Caplet put option years