Everest Option

DEFINITION of 'Everest Option'

A type of exotic equity option belonging to a class known as mountain range options. The value of an Everest option is based on a basket of underlying securities, as opposed to the typical listed option which has just one underlying asset.

Everest options are in effect for very long time periods – up to 10 years or more – and the payoff of the option is based on the aggregate performance of the worst-performing stock over the full time period.

BREAKING DOWN 'Everest Option'

Everest options are created by - and for - large institutional investors, like hedge funds and investment banks. These very intricate options may contain between 15 and 25 stocks, which can make them difficult to fairly value.

An investor could be devastated by one bad stock among a group of otherwise great performers over the life of an Everest option. If 14 out of 15 stocks were to quadruple in value but the remaining stock dropped 10% over the full period, the option would only recognize the performance of the latter in its payout!

RELATED TERMS
  1. Mountain Range Options

    A family of exotic options based on multiple underlying securities. ...
  2. Exotic Option

    An option that differs from common American or European options ...
  3. Asian Option

    An option whose payoff depends on the average price of the underlying ...
  4. Himalayan Option

    An exotic equity option belonging to a class known as mountain ...
  5. Basket Option

    A type of financial derivative where the underlying asset is ...
  6. Option Class

    The set of all the call options or all the put options for a ...
Related Articles
  1. Professionals

    Options

    Options
  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. Options & Futures

    Types of Options

    There are many different types of options. In addition to general put options and call option, we will discuss 13 different types of options. Some of these option types are better suited to day ...
  4. Options & Futures

    Options Basics: Types Of Options

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

    Introduction - Day Trading and Options

    Options have not been a tradition part of day-trading strategy, but this is quickly changing.
  6. Options & Futures

    Stock Options: What's Price Got To Do With It?

    A thorough understanding of risk is essential in options trading. So is knowing the factors that affect option price.
  7. Professionals

    Exchange Traded Options

    CFA Level 1 - Exchange Traded Options. Contrasts over the counter options from those traded on the exchange. Discusses the characteristics of many exchange traded options.
  8. Options & Futures

    Getting Acquainted With Options Trading

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

    Options Basics: How To Read An Options Table

    Sponsor: At last, an easy way to predict stock trends – get your FREE copy of 5 Chart Patterns You Need to Know. By Jay Kaeppel As more and more traders have learned of the multitude of ...
  10. Professionals

    European vs. American Options and Moneyness

    CFA Level 1 - European Vs. American Options and Moneyness. Differentiates European and American options and contrasts the concepts of instrinic and time value. Also discusses the moneyness of ...
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. Do options make more sense during bull or bear markets?

    Understand how options may be used in both bullish and bearish markets, and learn the basics of options pricing and certain ... Read Answer >>
  3. Do you have to be an expert investor to trade put options?

    Learn about investing in put options and the associated risks. Explore how options can provide risk, which is precisely defined ... Read Answer >>
  4. Are put options more difficult to trade than call options?

    Learn about the difficulty of trading both call and put options. Explore how put options earn profits with underlying assets ... Read Answer >>
  5. Is it possible to trade forex options?

    Yes. Options are available for trading in almost every type of investment that trades in a market. Most investors are familiar ... Read Answer >>
  6. What does high open interest tell you about an option?

    Learn about the open interest of options contracts and what a high and a low open interest indicate about the liquidity of ... Read Answer >>
Hot Definitions
  1. 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; ...
  2. Yield Curve

    A line that plots the interest rates, at a set point in time, of bonds having equal credit quality, but differing maturity ...
  3. 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 ...
  4. Keynesian Economics

    An economic theory of total spending in the economy and its effects on output and inflation. Keynesian economics was developed ...
  5. Society for Worldwide Interbank Financial Telecommunications ...

    A member-owned cooperative that provides safe and secure financial transactions for its members. Established in 1973, the ...
  6. Generally Accepted Accounting Principles - GAAP

    The common set of accounting principles, standards and procedures that companies use to compile their financial statements. ...
Trading Center