knock-out option(redirected from Knock Out Option)
An option contract that automatically expires, even before the expiration date, if the underlying asset reaches a certain price that would be disadvantageous to the option writer. If this price (called the knock-out) is reached, the option becomes worthless. Most of the time, the knock-out results in the holder losing the premium, though some knock-out options, known as rebate barrier options, refund part of it. See also: Barrier option.
An option that loses its entire value in the event the underlying asset crosses a predetermined price level.