Double One-Touch Option

AAA

DEFINITION of 'Double One-Touch Option'

A type of exotic option that gives an investor an agreed upon payout if the price of the underlying asset reaches or surpasses one of two predetermined barrier levels. An investor using this type of option is able to determine the position of both barriers, the time to expiration, and the payout to be received if the price does rise above one of the barriers. Either one of the barrier levels must be breached prior to expiration for the option to become profitable and for the buyer to receive the payout. If neither barrier level is breached prior to expiration, the option expires worthless and the trader loses all the premium paid to the broker for setting up the trade.

INVESTOPEDIA EXPLAINS 'Double One-Touch Option'

This type of option is useful for traders who believe the price of an underlying asset will undergo a large price movement, but who are unsure of the direction. Some traders view this type of exotic option as being like a straddle position, since the trader stands to benefit on a calculated price movement up or down in both scenarios. This type of option is growing in popularity among traders in the forex markets.

For example, assume the USD/EUR rate is 1.20 and the trader believes that next week's economic numbers will greatly affect this rate. A trader can use a double one-touch option with barriers at 1.19 and 1.21 to capitalize on this outlook. In this case, the trader stands to make a profit if the rate moves beyond either of these levels before expiry, and he/she stands to lose the premium if the rate remains within these barriers.

RELATED TERMS
  1. Barrier Option

    A type of option whose payoff depends on whether or not the underlying ...
  2. Expiration Date (Derivatives)

    The last day that an options or futures contract is valid. When ...
  3. Forex - FX

    The market in which currencies are traded. The forex market is ...
  4. Digital Option

    An option whose payout is fixed after the underlying stock exceeds ...
  5. Strike Price

    The price at which a specific derivative contract can be exercised. ...
  6. Straddle

    An options strategy with which the investor holds a position ...
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. Forex Education

    How To Trade Forex On News Releases

    When economic data comes out, it can have a marked impact on the currency market. Find out how to profit.
  3. 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 ...
  4. 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, ...
  5. Options & Futures

    What is spread hedging?

    Learn about one of the most common risk-management strategies options traders use, called spread hedging, to limit exposure to harmful stock movements.
  6. Options & Futures

    What role does intrinsic value play in put options?

    See why the concept of intrinsic value is so important in options trading and how investors use it to evaluate the worth of their options contract.
  7. Options & Futures

    What are the most common momentum oscillators used in options trading?

    Read about some of the most common technical momentum oscillators that options traders use, and learn why momentum is a critical concept for options trading.
  8. Options & Futures

    How are Bollinger BandsĀ® used in options trading?

    Use Bollinger Bands to identify volatility changes and place options trades at the right time; profit in bull or bear markets using these strategies.
  9. Options & Futures

    Stock Futures vs Stock Options

    A full analysis of when is it better to trade stock futures vs when is it better to trade options on a particular stock. A quick overview of how each of them works and why would a trader, investor, ...
  10. Options & Futures

    The Potential Of Low-Priced Options

    The benefits of trading low-priced options, and learning how to pinpoint them, can be a very profitable strategy for an options trader.

You May Also Like

Hot Definitions
  1. Christmas Tree

    An options trading strategy that is generally achieved by purchasing one call option and selling two other call options at ...
  2. Christmas Club

    A short-term savings account that usually pays out the full account balance to its account holders once each year, right ...
  3. Boston Snow Indicator

    A market theory that states that a white Christmas in Boston will result in rising stock prices for the following year. For ...
  4. Christmas Island Dollar

    The former currency of Christmas Island, an Australian island in the Indian Ocean that was discovered on December 25, 1643. ...
  5. Santa Claus Rally

    A surge in the price of stocks that often occurs in the week between Christmas and New Year's Day. There are numerous explanations ...
  6. Commodity

    1. A basic good used in commerce that is interchangeable with other commodities of the same type. Commodities are most often ...
Trading Center