knock-out option

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Knock-out option

An option that- is worthless at expiration if the underlying commodity or currency price reaches a specific price level.

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.

knock-out option

An option that loses its entire value in the event the underlying asset crosses a predetermined price level.