Everest Option

Categories: Derivatives

There exists a whole set of exotic option setups named after mountains and mountain-related terms. As you probably guessed mid-way through that last sentence, an Everest option is one of these.

A typical option is based on a single underlying asset. So you might buy an option to purchase 100 shares of AMZN at $1,850, with a 30-day expiration (in practice, options expire on the 3rd Friday of every month in America). Or you might buy an option to buy 200 barrels of oil at $62. For each of these typical options, there is only one underlying asset...the AMZN shares in one case, the barrels of oil in the other.

The mountain range options include a basket of underlying securities. Each specific type has a different structure, giving holders a particular set of potential payoffs.

In the case of the Everest option, the time limit on the option is extremely long, maybe more than a decade. Meanwhile, the strategy is structured to provide a payoff based on the performance of the worst-performing security over the period covered in the option.

Other types of mountain range options include Atlas, Altiplano, Annapurna, and a bunch of others...but the highest hill to climb (or longest duration mountain) is Everest.

See: LEAP.

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