Barrier Option

  

Categories: Derivatives

Shares of a well-known fin-tech company are trading at $80. A Wall Street trader decides to buy knock-out barrier call options for the shares with a knock-out barrier of $95. Expiration date arrives, with the shares trading at $97. Now the options are expired and worthless.

In English? A barrier option is an option for which the payoff relies on the underlying asset exceeding or reaching a predetermined price.

It comes in two varieties: knock-in and knock-out. Knock-in means the option is worthless until the asset reaches the designated price, while knock-out means it is worthless if it exceeds said price. So, had the shares in our example been trading at $94 when the option expired, our Wall Street trader would have been in a much better position.

It's also a type of Trojan but, um, that's really a different story.

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Finance: What is Intrinsic Value (of An ...6 Views

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Finance allah shmoop what is the intrinsic value of an

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option All right this is brandi She owns a twelve

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dollars strike price call option toe buy a share of

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my fifteen minutes are up dot com a retirement home

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chain for reality tv stars who recently gained self awareness

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Well the stock is trading for fifteen bucks a share

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three bucks that is it is three dollars in the

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money and if brandy converted it into a share this

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moment and then immediately sold the stock for fifteen dollars

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in cash well she'd make three bucks But there's a

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catch per call option doesn't expire for five weeks so

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that three dollars in the money is actually worth more

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than three dollars because she has data or time yet

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to exercise and convert or just sell the option itself

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So it's worth mohr because well a stock might go

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up from fifteen dollars in overtime Stocks go up so

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in the next five weeks well couldn't go up a

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dime twenty cents twenty five cents and make that three

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Dollars worth three ten three twenty three Twenty five Sure

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sure it could happen So yeah that's The difference between

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actual value and intrinsic value You get seita kickers in

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there making the option's worth more than just converting them

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into stock and selling them right there And yeah it

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looks like our one and a half minutes are up

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