The most famous and used options - Part 3


The most famous and used options - Part 3
The most famous and used options - Part 3 © Eduardo Munoz Alvarez / Stringer Getty Images News

Here are some of the most famous, used or well-known options With Asian options we intend to evaluate the evolution of the stock in terms of average. This evaluation can be made at the strike level, equating the latter to the average: in this case we talk about average strike options.

Alternatively, this evaluation can be made at the term level with which the strike is compared: if in fact the exercise price is normally compared with the current price of the underlying, it is possible to replace the latter with the average of the prices; this is the case of average rate options.

Associated with Asian options there are a series of additional clauses that determine some instrumental aspects, such as the type of average, whether the average is weighted or not, whether the detection is continuous or discrete.

Barrier clauses can be added to any type of option. Associated with a price limit (i.e. when the underlying crosses, up or down, a certain price), the beginning or end of validity is determined. With an in type barrier we mean to determine the moment in which the option begins to have validity: for example a down-and-in option indicates an option that begins to be valid when the price of the underlying falls below a certain value.

Conversely, an out type option. As in the previous case, additional clauses determine the type of detection that is done on the value of the underlying (continuous or discrete detection). A compound option is an option written on another derivative security.

All combinations are possible: put on put, put on call and so on. A particular type is the chooser option, in which the subscriber can determine whether to buy/sell a call or a put. A compound option can naturally have all the other characteristics of the other options (European/American, barrier, Asian etc.) A binary option has the characteristic of not evaluating the profit in differential terms (for example in the case of the call the profit can be understood as the difference between the market value and the strike) but the profit is fixed upon exceeding a certain threshold value (a fixed amount of money is collected as long as the underlying exceeds a certain value).

In lookback options the value of the exercise price is equal to the maximum or minimum (naturally depending on the type of option) of the prices assumed by the underlying during the period of validity of the option itself.

variants of this kind of options are the partial-lookbacks for which the maximum or minimum is multiplied by a factor less than 1, thus dampening the possible gain. In Bermuda options, exercise is only permitted on certain dates (for example some swaptions) or during specific time intervals; they fall into the category of non-standard American options.

These are vanilla options for which the arithmetic mean of the prices recorded occurs instead of the expiry price of the underlying.