The percentage difference between a barrier option‘s strike and a set trigger (knock-in or knock-out barrier). This tool is used as an indicator of how much an option is close to a vanilla option. The higher the stealth, the closer the option to a vanilla option in both strike and risk profile. For example, suppose the market trades at 50. The 50 call with a very small knock-out barrier (e.g., 0.000005) will be similar to a regular 50 call. The 50 call with a knock-out at 150 also will be similar in price and risk profile to a regular call. However, the 50 call with a 0.05 knock-in barrier will not behave like a vanilla option.
Stealth applies only to barrier options and other options that come with a touch feature (touch option, one touch option, touch rebate barrier option, etc). It accounts for the additional relationships established by the introduction of the barrier to the vanilla option.
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