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Combination

• Is an option strategy consisting of multiple parts. These parts can be puts and calls which are arranged as a single position.

 
 Embedded terms in definition
 Option
Position
 
 Referenced Terms
 Basic balance: In a balance of payments, the basic balance is the net balance of the Combination of the current account and the capital account.

 Blended trade: Is the Combination of two or more bonds or tranches executed as a single position. Often this is done to offset the individual, lopsided risks in two very different instruments. By doing such a trade, an investor or portfolio manager is trying to create a more stable investment.

 Call risk: The Combination of cash flow uncertainty and reinvestment risk introduced by a call provision.

 Capital market line: Abbreviated CML. The line defined by every Combination of the risk-free asset and the market portfolio.

 Collar: Is the Combination of a long Cap position and a short Floor position. It is sometimes called a range forward or a fence. Generally, it is structured so that the net cost of the collar is zero or close to zero. This means that the debit expense for the long cap premium is offset by the credit received for the short floor premium. This term is also used to define the prepayment speed range for a credit instrument.An upper and lower limit on the interest rate on a floating-rate note.A Collar also refers to a Combination of cap (call option on interest rates) and floor (put option on interest rates). An investor who holds a collar is in effect protected from interest rate increases or interest rate declines.Buy a call and sell a put. If a firm buys jet fuel and wants protection against jet fuel increases, it can buy a call option with a higher exercise price than the current price and sell a put option (with lower exercise price than the current price) and limit the price fluctuations to be in between the exercise price of the call and the exercise price of the put.

 
 Related Terms
 Combination matching
Combination strategy

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