Investor Glossary-lookback optionInvestor Glossary-lookback optionInvestor Glossary-lookback optionInvestor Glossary-lookback optionInsightful stock market charts - Click here
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

Lookback Option

The HTML to link to this page

A lookback option is a type of exotic option that allows an investor to look back over the period to maturity and determine the ideal execution strategy for the lookback option. There are two primary types of lookback options: fixed and floating. In the case of a fixed lookback option, the investor is allowed to choose the optimal execution point over the entire life of the lookback option, with the strike price being predefined. Whereas with a floating lookback option, the strike price of the option is automatically set at the highest or lowest price of the underlying over the lookback option's life. The flexibility offered by the lookback option significantly decreases the chance that the lookback option will expire worthless. However, at the same time, this flexibility also makes lookback options one of the most expensive types of exotic options. Despite the high cost of lookback options, they are valuable in that their flexibility removes the problem of market timing to a certain extent.

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

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
©2004-2015 Investor Glossary - All rights reserved - Terms of Use