An interest rate cap (cap) is a bundle of options, one for each interest period (caplets). A caplet pays the buyer the difference at the end of the period if the floating rate set at the start of the period is above the strike rate.
Consider a hypothetical example in which a cap has a notional amount of 10 billion yen and a strike rate of 1.50%. If the floating rate for a period is set at 2.0%, the payment for that period (1 year) is 10 billion yen × 1 year × (2.0% − 1.5%) = 50 million yen. For periods in which the floating rate is set at 1.50% or below, the buyer receives nothing, and the buyer's only cost is the premium paid.