A cap/floor spread strategy is a predefined strategy constructed by buying and selling a cap and floor. You can do either of the following:
Buy a cap and sell a cap, both with the same expiry and notional but different strike prices.
Buy a floor and sell a floor, both with the same expiry and notional but different strike prices.
Advantages of a Cap/Floor Spread
In a cap/floor spread strategy, the cost of one of the options reduces or cancels the cost of the other.
Pricing a Cap/Floor Spread in SDX Interest Rates
The premium, which is expressed as a percentage of the notional, is usually paid upfront. However, it can also be paid in installments over the life of the cap/floor spread.
The upfront payment to be made for a cap/floor spread is shown in the Market Price result. The Amortize premium result shows the annual periodic payment that would be paid if the cap/floor spread was bought in installments.
By default the Amortize premium result is not displayed. You can choose to display it in the Settings window. For more information see Displaying the Cap/Floor Premium as an Amortized Value .