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. Walras' Law

    An economics law that suggests that the existence of excess supply in one market must be matched by excess demand in another ...
  2. Market Segmentation

    A marketing term referring to the aggregating of prospective buyers into groups (segments) that have common needs and will ...
  3. Effective Annual Interest Rate

    An investment's annual rate of interest when compounding occurs more often than once a year. Calculated as the following: ...
  4. Debit Spread

    Two options with different market prices that an investor trades on the same underlying security. The higher priced option ...
  5. Odious Debt

    Money borrowed by one country from another country and then misappropriated by national rulers. A nation's debt becomes odious ...
  6. Takeover

    A corporate action where an acquiring company makes a bid for an acquiree. If the target company is publicly traded, the ...
Trading Center