A cap/floor strangle is a predefined strategy constructed by buying /selling a cap and a floor.
You can do either of the following:
Buy a cap and buy a floor both with the same expiry but different strike prices and notionals.
Sell a cap and sell a floor both with the same expiry but different strike prices and notionals.
Advantages of a Cap/Floor Strangle Strategy
Similar to a cap/floor straddle, investors enter into vanilla cap/floor strangles in order to benefit from extreme movement in an interest rate in either direction. However, a cap/floor strangle is generally cheaper than a cap/floor straddle because of the gap between the two strikes.
Pricing a Cap/Floor Strangle 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 strangle.
The upfront payment to be made for a cap/floor strangle is shown in the Market Price result. The Amortize premium result shows the annual periodic payment that would be paid if the cap/floor strangle 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 .