A variant of the contingent premium option which doesn’t require the payment of an initial premium. However, the holder agrees to pay predetermined amounts if the underlying price gets in the money beyond specific levels over the life of the option. As long as the underlying price is still, or moving, in the money, the holder runs no risks. But the holder will be worse off if the opposite occurs, i.e., when the underlying changes course after mini-premium amounts have been paid, ending up the option out of the money.
This option is also known as a step payment option or a rental option.
