An extended barrier option (specifically a partial-time barrier option) in which the barrier clause is only in a monitoring state (i.e., effective) for a period of time during the option’s life. For example, in an up-and-out call option with a protection period a fixed period of time is imposed at the start of the option’s life. The option during the protection period cannot be deactivated or knocked out. At the end of the protection period, the option can be knocked out with the payment of a constant rebate if the underlying price is trading at or above the barrier. Otherwise, the call option remains in effect until the first time after the protection period ends when the underlying price reaches the barrier, or until expiration, whichever occurs first.

In the period following the protection period, if the underlying price breaks through the barrier prior to expiration, the call option will be knocked out and a fixed rebate will be paid. But if the underlying price has not touched the barrier by the expiration date, then the call turns into a vanilla call that will be exercised if the underlying price ends up above the strike level, otherwise it expires worthless.

The rebate is an important distinguishing feature of a protected barrier option because if the rebate is zeroed out, this option would no more be different from a forward-start barrier option.

This option is also known as a protected barrier option.