Floortion
A type of option that gives the holder the right, but not the obligation, to purchase or sell an interest rate floor at a specific price during a predetermined period of time. The only upfront cost to the holder is the premium the holder has to pay to purchase the option. Investopedia Says:
A floortion combines the benefits of both an interest rate floor and an option. The investor who buys the right to enter into an interest rate floor will receive a payoff when the interest rate on the underlying floating-rate note falls below a certain level. If the floating rate does not fall below a certain rate, then the investor can exercise his or her right to not purchase the interest rate floor at the premium. Related Terms:
Collar
Derivative
Floating-Rate Note - FRN
Interest Rate Floor
Option
Over-The-Counter Market
Premium |