Shout option

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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 ?
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. In particular, unlike ladder options, they do not cap the greatest possible intrinsic value from the start, and they do not require their holders to have precise anticipations on a set of target price increases in the underlying asset.
In Section II, the specific properties of cliquet options are highlighted, in comparison with alternative contracts traded in the markets such as lookback, ladder and shout options. Then, the difficulties associated with dynamic hedging are briefly analyzed, leading to the presentation of a semi-static rollover strategy to replicate the cliquet option payoff.
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. The latter allows you to lock in the intrinsic value of the option at any time prior to expiry--an action referred to as a " shout ", thus providing the following payoff at maturity (for a call):