Cash-or-Nothing Put

DEFINITION of 'Cash-or-Nothing Put'

An exotic option whose payoff is a specified fixed price (sometimes equal to the strike price) if the underlying asset's price falls below the strike price; if not, the payoff is set to zero. A cash-or-nothing put option is classified as a binary or digital option because the payout is either a set amount or nothing at all.

BREAKING DOWN 'Cash-or-Nothing Put'

A plain vanilla put option's payout, in contrast, is equal to the difference between the strike price and the market price when the option expires. Before the option expires, there is a wide range of possible payouts, not just two. An investor might buy a cash-or-nothing put option instead of a plain vanilla put option if he or she thinks the underlying asset's price will fall short of a given level by only a small amount. The price of a cash-or-nothing put option is based on the probability of the underlying asset's price falling below the strike price.

RELATED TERMS
  1. Cash-Or-Nothing Call

    An exotic option whose payoff is a predetermined amount (sometimes ...
  2. Asset-or-Nothing Put Option

    An option payoff that is equal to the asset's price if the asset ...
  3. Average Price Put

    A type of option where the payoff depends on the difference between ...
  4. Average Price Call

    A type of option where the payoff is either zero or the amount ...
  5. Bull Put Spread

    A type of options strategy that is used when the investor expects ...
  6. Strike Price

    The price at which a specific derivative contract can be exercised. ...
Related Articles
  1. Options & Futures

    Want to Day Trade? Try Binary Options Or Spread Betting

    Interested in Day Trading? These two derivative products are growing in popularity due to their profit potential and small trading capital required.
  2. Options & Futures

    Exploring The World Of Exotic Options

    Exotic options provide investors with new alternatives to manage their portfolio risks and speculate on various market opportunities. The pricing for such instruments is considerably complex, ...
  3. Professionals

    Options: Calls and Puts

    CFA Level 1 - Options: Calls and Puts. Learn the two main types of option derivatives and how each benefits its holder. Provides an example multiple choice question for an option.
  4. Options & Futures

    Three Ways to Profit Using Put Options

    A brief overview of how to profit from using put options in your portfolio.
  5. Options & Futures

    Getting Acquainted With Options Trading

    Learn more about stock options, including some basic terminology and the source of profits.
  6. Options & Futures

    Options Basics: Types Of Options

    The distinction between American and European options has nothing to do with geographic location.
  7. Options & Futures

    Profiting From Stock Declines: Bear Put Spread Vs. Long Put

    If you're bearish, you should compare the risk/reward characteristics of these two strategies.
  8. Options & Futures

    Options Pricing: A Review Of Basic Terms

    The following is intended as a review of basic option terminology, which can be used as a reference as needed: American Options - An option that can be at any point during the life of the contract. ...
  9. Options & Futures

    Exotic Options: A Getaway From Ordinary Trading

    Exotic options are like regular options, except that they have unique features that make them complex. These unusual investment vehicles can reignite your interest in trading.
  10. Options & Futures

    What's the Strike Price?

    The strike price is the price at which a derivative can be exercised, and refers to the price of the derivative’s underlying asset. In a call option, the strike price is the price at which the ...
RELATED FAQS
  1. 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 ... Read Answer >>
  2. How do I set a strike price in a put?

    Learn about put options, considerations to make before you select strike prices and how to select strike prices for your ... Read Answer >>
  3. When is a put option considered to be "in the money"?

    Learn about put options, what they are, how these financial derivatives operate and when put options are considered to be ... Read Answer >>
  4. How do I set a strike price for an option?

    Learn about the strike price of an option and how to set a strike price for call and put options depending on risk tolerance ... Read Answer >>
  5. How does the term 'in the money' describe the moneyness of an option?

    Find out what in the money means about the moneyness of call or put options and what it indicates about the relationship ... Read Answer >>
  6. What is the difference between in the money and out of the money?

    Learn about how the difference between in the money and out of the money options is determined by the relationship between ... Read Answer >>
Hot Definitions
  1. Goodwill

    An account that can be found in the assets portion of a company's balance sheet. Goodwill can often arise when one company ...
  2. Return On Invested Capital - ROIC

    A calculation used to assess a company's efficiency at allocating the capital under its control to profitable investments. ...
  3. Law Of Demand

    A microeconomic law that states that, all other factors being equal, as the price of a good or service increases, consumer ...
  4. Cost Of Debt

    The effective rate that a company pays on its current debt. This can be measured in either before- or after-tax returns; ...
  5. Yield Curve

    A line that plots the interest rates, at a set point in time, of bonds having equal credit quality, but differing maturity ...
  6. Stop-Limit Order

    An order placed with a broker that combines the features of stop order with those of a limit order. A stop-limit order will ...
Trading Center