Average Strike Option

AAA

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.

INVESTOPEDIA EXPLAINS '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.

RELATED TERMS
  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. Expiration Date

    The last day that an options or futures contract is valid. When ...
  4. Vanilla Option

    A financial instrument that gives the holder the right, but not ...
  5. In The Money

    1. For a call option, when the option's strike price is below ...
  6. Out Of The Money - OTM

    A call option with a strike price that is higher than the market ...
Related Articles
  1. Reducing Risk With Options
    Options & Futures

    Reducing Risk With Options

  2. Getting Acquainted With Options Trading
    Options & Futures

    Getting Acquainted With Options Trading

  3. Stock Options: What's Price Got To Do ...
    Options & Futures

    Stock Options: What's Price Got To Do ...

  4. The 4 Advantages of Options
    Options & Futures

    The 4 Advantages of Options

comments powered by Disqus
Hot Definitions
  1. Certificate Of Deposit - CD

    A savings certificate entitling the bearer to receive interest. A CD bears a maturity date, a specified fixed interest rate ...
  2. Days Sales Of Inventory - DSI

    A financial measure of a company's performance that gives investors an idea of how long it takes a company to turn its inventory ...
  3. Accounts Payable - AP

    An accounting entry that represents an entity's obligation to pay off a short-term debt to its creditors. The accounts payable ...
  4. Ratio Analysis

    Quantitative analysis of information contained in a company’s financial statements. Ratio analysis is based on line items ...
  5. Days Payable Outstanding - DPO

    A company's average payable period. Calculated as: ending accounts payable / (cost of sales/number of days).
  6. Net Sales

    The amount of sales generated by a company after the deduction of returns, allowances for damaged or missing goods and any ...
Trading Center