Interest Rate Collar vs Option Strategy Collar

An interest rate collar is usually done by buying the cap and selling the floor. An option strategy collar is done by buying a protective put (long underlying, buy a put) and selling a covered call (lond underlying, sell a call). Interest rate collar: - cap pays when interest rates increase (bond price decrease) - floor pays when interest rates decrease (bond price increase) Option strategy collar: - protective put pays when price decreases - covered call pays when price falls/remains steady Both are collars, but why do the payoffs not match? E.g. for interest rate collar, cap pays when price decrease, floor pays when price increase, but for option collar, put pays when price decrease, call pays when price decrease. I’d have thought the point of a collar is to protect in downside and upside.

when you look at a interest rate collar - look at it as the underlying being a interest rate - not a bond. Remember bond has the opposite effect due to rate changes … (as you have stated).

So a Call on a rate as underlyng = Put on a bond as underlying …