Balloon Option
Definition of 'Balloon Option'An option contract where the strike price increases significantly after the underlying asset's price reaches a predetermined threshold. A balloon option increases the investor's leverage on the underlying asset. |
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Investopedia explains 'Balloon Option'The main idea behind the balloon option is that after the threshold is exceeded, the regular payout is increased. For example, let's say that the threshold is $100. After the underlying exceeds this amount, rather than paying the regular dollar-for-dollar amount, the option payment would balloon to $2 for every $1 change against the strike price. |
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