Examples in the CFAI readings involve selling a call and buying a put. Which gives protection on the downside for limited gains on the upside, but I’ve seen also seen examples of selling a put and buying a call. Can someone explain where this would be used ?
If you have the short position of the equity, you will use selling aput and buying a call collar.
Thanks
just always set up your protection first. if you own an asset. to protect it buy a put. now to finance this sell a call. if your a floating rate borrower to protect yourself buy a call on interest rates, now to finance this sell a put. if your a bank making floating rate loans to protect yourself from falling rates buy a put on rates, now to finance this sell a call.
i think about it in simple terms: if you are borrowing, buy the cap and sell the floor—you are trying to cap high rates if you are lending, buy the floor and sell the cap—you are trying to floor low rates same thing on interest rate options: if you are borrowing, buy calls if you are lending, buy puts