Shout option

Shout option

Shout Option

An option contract that allows the holder the opportunity at certain points in the life of the contract to lock in a certain profit while continuing the holder the contract. For example, if a contract is in the money by $10 per share at a given time, the option holder may "shout" or lock in the profit. This means that he/she will make at least $10 per share regardless of the future price movements of the underlying asset. If the option is only $5 in the money at expiration, the holder still makes $10 per share. On the other hand, if it is in the money by $15 per share at expiration, the holder can collect the higher profit. A shout option gives a great deal of flexibility to the option holder. It is a type of exotic option.
References in periodicals archive ?
If you are uncertain about both the magnitude and the timing of the underlying asset price increases, an alternative strategy is to turn to a shout option.
A shout option is valued in much the same way as an American option (Windcliff et al.
They also have many advantages compared to other options that allow their holders to << lock in >> positive intrinsic values prior to expiry, such as ladder or shout options.