down-and-out option (redirected from Down and Out Option)

Down-and-Out Option

A type of knock-out barrier option that ceases to exist when the price of the underlying security hits a specific barrier price level. If the price of the underlying does not reach the barrier level, the investor has the right to exercise their European call or put option at the exercise price specified in the contract.

Notes:

For example, a down-and-out option has a strike price of 100 and a knock-out price of 80. At the option's inception the price of the stock was 95 but before the option was exercisable the price of the stock hit 80, this means the option automatically expires worthless even if the underlying hits 100 before the exercise date.

See also: Barrier Option, Down-and-In Option, European Option, Exotic Option, Knock-Out Option, Option, Up-and-In Option, Up-and-Out Option

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Down-and-out option

Barrier option (or knock-out option) that initially is a plain vanilla option, but which ceases to exist if the underlying security falls to a predetermined level (the barrier price).

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down-and-out option

An option that terminates when the value of the underlying asset falls to a predetermined level. Compare down-and-in option.