Average Strike Option


DEFINITION of 'Average Strike Option'

A type of Asian option in which the strike price is based on an average of the spot rate over a period of time. The dates used to calculate the average strike price cover the life of the option, and are referred to as the "fixings". When the expiration date of the average strike option is reached, the option is considered in the money if the spot rate is higher than the average strike.

BREAKING DOWN 'Average Strike Option'

Most average strike options give equal weight to each day that the spot rate is checked to compute the average strike, but some versions allow the weighting to be adjusted. Investors purchase average strike options because of its relatively lower volatility when compared to non-average options, since the strike price is calculated over a period of time rather than predetermined.

  1. Spot Rate

    The price that is quoted for immediate settlement on a commodity, ...
  2. Asian Option

    An option whose payoff depends on the average price of the underlying ...
  3. Out Of The Money - OTM

    A call option with a strike price that is higher than the market ...
  4. Vanilla Option

    A financial instrument that gives the holder the right, but not ...
  5. Expiration Date (Derivatives)

    The last day that an options or futures contract is valid. When ...
  6. In The Money

    1. For a call option, when the option's strike price is below ...
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