Bermuda Option

AAA

DEFINITION of 'Bermuda Option'

A type of exotic option that can be exercised only on predetermined dates, typically every month. Bermuda options are a combination of American and European options. American options are exercisable anytime between the purchase date and the date of expiration. European options, conversely, are exercisable only at the date of expiration. Bermuda options are exercisable at the date of expiration, and on certain specified dates that occur between the purchase date and the date of expiration. Other exotic options include binary options and quantity-adjusting options, often called quanto options for short.

INVESTOPEDIA EXPLAINS 'Bermuda Option'

Options are financial derivatives that offer buyers the right, but not the obligation, to buy (call) or sell (put) a security at a particular price on or before a specified date. Bermuda options provide writers with more control over when the options can be exercised, while giving the buyer a contract that is less expensive than an American option, and not as restrictive as a European option. Bermuda options are typically less expensive than American options, because of the larger premiums that American options demand due to their flexibility.

RELATED TERMS
  1. Option

    A financial derivative that represents a contract sold by one ...
  2. European Option

    An option that can only be exercised at the end of its life, ...
  3. Bermuda Swaption

    A derivative financial instrument that gives the holder the right, ...
  4. Balloon Option

    An option contract where the strike price increases significantly ...
  5. American Option

    An option that can be exercised anytime during its life. American ...
  6. Exotic Option

    An option that differs from common American or European options ...
Related Articles
  1. Options & Futures

    Options Basics Tutorial

    Discover the world of options, from primary concepts to how options work and why you might use them.
  2. Options & Futures

    The Controversy Over Option Expensing

    There has been much debate over whether companies should treat employee stocks options as an expense. This article examines both sides of the argument.
  3. Options & Futures

    When holding an option through expiration date, are you automatically paid any profits, or do you have ...

    Holding an option through the expiration date without selling does not automatically guarantee you profits, but it might limit your loss. For example, if you buy a call option for stock A, which ...
  4. Options & Futures

    What do all of the letters in a stock option ticker symbol mean?

    The option ticker explains four main things about the option: the underlying stock, whether it is a call or a put option, the expiration month and the strike price. An option ticker is quoted ...
  5. Options & Futures

    What's the difference between a regular option and an exotic option?

    Before learning about exotic options, you should have a fairly good understanding of regular options. Both types of options share the idea of having the right to buy or sell an asset in the future, ...
  6. Options & Futures

    Options -- Accessing Stakes In Apple At Less Cost

    Finding Apple stock costly to trade? Here are multiple ways to trade it through low-cost Apple options.
  7. Options & Futures

    These Are The Top Brokerage Firms For Options Trading

    Trading options? Here is the list of the best brokerage firms for options trading, with features, functionality, and brokerage rates.
  8. Options & Futures

    What is a volatility smile?

    Discover what options traders mean when they refer to a "volatility smile," and learn why a volatility smile's existence perplexes many investors and analysts.
  9. Options & Futures

    Apple As An Example Of How a Protective Collar Works

    We define a protective collar, using Apple (AAPL) as an example. A protective collar is a combination of a covered call plus long put position.
  10. Options & Futures

    Apple As An Example Of How to Use a Bull Call Spread to Trade

    Here's how you can use a bull call spread to trade stocks.

You May Also Like

Hot Definitions
  1. Portfolio Turnover

    A measure of how frequently assets within a fund are bought and sold by the managers. Portfolio turnover is calculated by ...
  2. Commercial Paper

    An unsecured, short-term debt instrument issued by a corporation, typically for the financing of accounts receivable, inventories ...
  3. Federal Funds Rate

    The interest rate at which a depository institution lends funds maintained at the Federal Reserve to another depository institution ...
  4. Fixed Asset

    A long-term tangible piece of property that a firm owns and uses in the production of its income and is not expected to be ...
  5. Break-Even Analysis

    An analysis to determine the point at which revenue received equals the costs associated with receiving the revenue. Break-even ...
  6. Key Performance Indicators - KPI

    A set of quantifiable measures that a company or industry uses to gauge or compare performance in terms of meeting their ...
Trading Center