Investor Glossary-knock-in optionInvestor Glossary-knock-in optionInvestor Glossary-knock-in optionInvestor Glossary-knock-in optionInsightful stock market charts - Click here
investor
Categories    # A B C D E F G H I J K L M N O P Q R S T U V W X Y Z

Knock-In Option

The HTML to link to this page
 

A knock-in option or "trigger" option is a type of barrier option that is latent and only begins to function as a normal option once a certain price level is reached before expiration. A knock-in option might not knock in at all. A knock-in option is typically a currency or commodity option. For a knock-in option, the knock-in option writer sets the limit hoping to restrict losses if there is a sharp price move. Higher implied volatilities suggest a greater probability of triggering the barrier and knocking in the knock-in option. A knock-in option seller removes some of the price exposure and buyer pays less for a knock-in option because it offers only limited profit opportunity. Any barrier options, including a knock-in option, is activated or de-activated once the price of the underlying financial instrument reaches a set level. The opposite of a knock-in option is a knock-out option. Knock-in option investments are suitable for investors with strong directional views or premium constraints.



Rate this Knock-In Option definition...

Learn about investing with the Investor Glossary Term of the Day


Click here for insightful stock market charts. Where is the market headed? The answer may surprise you. Find out
with the exclusive & Barron's recommended charts of Chart of the Day.


Popular Terms: limit order, EBITDA, reverse mortgage, per diem, balance sheet, APR, option premium, cancelled check, required rate of return, debt service coverage, covered put, wholly-owned subsidiary, Key Rate Duration, dividends payable, liquidity ratio, deferred revenue, labor relations, quality assurance, diluted share, margin rate, 144a, inflation, ex-dividend, in escrow, risk management, retained earnings, deferred tax, FICO score, 401a, stock split, 1035 exchange, phantom income, command economy, FTSE, minority interest, irrevocable trust, VIX, stock market close, average price per share, Zero Cost Collar, open position, 1031 exchange, current ratio, ex-dividend date, implied volatility, annual return, real GDP, LIBOR, class C shares


Accounting | Banking | Bonds | Brokers | Economy | Futures | Mutual Funds | Options | Real Estate | Retirement | Stocks | Taxes | Technical Analysis
Home | Term of the Day | Suggest a Term | Chart of the Day | Dogs of the Dow
©2004-2016 Investor Glossary - All rights reserved - Terms of Use