A constant maturity option (a floortion on a constant maturity swap) which gives the holder the right to place a floor on a CMS swap rate. This floor is a series of options (floorlets), similar to LIBOR-based floor structures. However, its mechanism is based on comparing the ten-year swap rate to the strike (floor level), rather than comparing LIBOR to the strike as is the case with standard or vanilla floors. This floor can also be viewed as a series of swaptions which have increasing maturities and their payoffs are multiplied by a specific annuity factor.

Floor payoff = max (K – ten year CMS rate, 0)

Like a regular floor, a constant maturity floor protects the holder from decreases in a floating rate (long-term swap rate or CMS rate) below a predefined level (the strike). The holder (the buyer) of this floor usually pays an upfront premium (or in installments) to the seller (expressed as a percentage of the notional amount).