A knock-out option which knocks out or deactivates if the barrier is hit during the monitoring period (window). If the barrier is not touched “early”, the option continues as a vanilla option and has the same payout. The window period starts as the trade is initiated and ends early before expiration date. This strategy can be employed by hedgers who expect the spot price would not break out through the barrier in the short run. Likewise, it can be followed by investors who anticipate low short-term volatility and act accordingly.
November 19, 2023