What does Cylinder Strategy mean?
In futures, cylinder is an option strategy with low risk and limited upside participation, but gives full hedge protection. Cylinder involves the simultaneous purchase of a put option and the sale of a call option for the same amount with the same expiry date. This is also known as cylinder option.
Futures Knowledge Explains Cylinder Strategy
The premium raised by the sale of the call option is used to pay the cost of the purchased put option. So a cylinder is a zero cost strategy. There is no initial cost borne by the investor while entering into cylinder option. Cylinder is ordinarily used in currency and interest rate markets. For example, this strategy provides full protection against a depreciation of the EUR/USD spot rate.