I would appreciate if you can help me with the following question.

What does to "Buy a floor mean"?,

1. To buy a put ?

2. To write a put ?

Thank you so much.

Ramon Pena

Hello Ramon,

It turns out that neither of your guesses is correct.

I must confess I never heard this expression before.  But, using my trusty Google, I learned that:

1) The terminolgy comes from the mortgage hedging market - something that sounds very risky to me.

2) An Interest Rate Floor is a contract that guarantees a minimum level of interest rate. A Floor can be a guarantee for one particular date, known as a Floorlet,  or Floors can extend for up to 10 years in most markets.

3)  In return for making this guarantee, the buyer pays a PREMIUM.
I am not familiar with trading interest rate products and I hope this explanation makes sense to you.  If not, good luck Googling!


Mark D. Wolfinger
The Rookie's Guide to Options:
The Beginner's Handbook of Trading Equity Options