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. |
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Investopedia explains '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. |
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