An option in which the strike price (notional payment) increases by a specific ratio as the price of the underlying breaks through a certain threshold, taking the option deeper in the money. For example, if the underlying overtakes a $100 trigger, the strike price may “balloon” by $6 for every additional dollar in the money. The balloon option is commonly used in forex markets but can also be used in commodity, equity and interest rate markets. It is generally cheaper than ordinary options with the same strike.
November 13, 2023
