Everest Option

AAA

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.

INVESTOPEDIA EXPLAINS '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. Altiplano Option

    A type of mountain range option that offers a specific coupon ...
  2. Rainbow Option

    A single option linked to two or more underlying assets. In order ...
  3. Annapurna Option

    A form of option contract from the "mountain range" series of ...
  4. Mountain Range Options

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

    An option that differs from common American or European options ...
  6. Underlying

    1. In derivatives, the security that must be delivered when a ...
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 Full Answer >>
  2. What risks should I consider taking a short put position?

    The risks to consider before taking a short put position are the odds of sustained weakness in the asset price and a spike ... Read Full Answer >>
  3. What happens if a software glitch fails to execute the strike price I set?

    If you've ever suffered the frustrating experience of having an order not filled or had a strike price fail to execute because ... Read Full Answer >>
  4. In what market situations might a short put be a profitable trade?

    Short puts would be a profitable trade in low-volatility bull markets or range-bound markets. Selling puts is a strategy ... Read Full Answer >>
  5. What is the relationship between implied volatility and the volatility skew?

    The volatility skew refers to the shape of implied volatilities for options graphed across the range of strike prices for ... Read Full Answer >>
  6. Which federal regulatory agencies approved and are now responsible for enforcing ...

    Five federal regulatory agencies approved and are jointly responsible for enforcing the Volcker rule. These agencies include ... Read Full Answer >>
Related Articles
  1. 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.
  2. Options & Futures

    Are Derivatives A Disaster Waiting To Happen?

    They've contributed to some major market scandals, but these instruments aren't all bad.
  3. Active Trading

    How Companies Use Derivatives To Hedge Risk

    Derivatives can reduce the risks associated with changes in foreign exchange rates, interest rates and commodity prices.
  4. Options & Futures

    Understanding Option Pricing

    Take advantage of stock movements by getting to know these derivatives.
  5. Fundamental Analysis

    Understanding the Profitability Index

    The profitability index (PI) is a modification of the net present value method of assessing an investment’s attractiveness.
  6. Economics

    What is Neoliberalism?

    Neoliberalism is a little-used term to describe an economy where the government has few, if any, controls on economic factors.
  7. Fundamental Analysis

    Explaining the Monte Carlo Simulation

    Monte Carlo simulation is an analysis done by running a number of different variables through a model in order to determine the different outcomes.
  8. Credit & Loans

    What is a Syndicated Loan?

    A syndicated loan is one that involves a group of lenders (called the syndicate) who pool their lending resources to make a loan.
  9. Investing Basics

    Explaining the Volcker Rule

    The Volcker Rule prevents commercial banks from engaging in high-risk, speculative trading for their own accounts.
  10. Economics

    Understanding Limited Liability

    Limited liability is a legal concept that protects equity owners from personal losses due to their ownership interest in the company.

You May Also Like

Hot Definitions
  1. American Dream

    The belief that anyone, regardless of where they were born or what class they were born into, can attain their own version ...
  2. Multicurrency Note Facility

    A credit facility that finances short- to medium-term Euro notes. Multicurrency note facilities are denominated in many currencies. ...
  3. National Currency

    The currency or legal tender issued by a nation's central bank or monetary authority. The national currency of a nation is ...
  4. Treasury Yield

    The return on investment, expressed as a percentage, on the debt obligations of the U.S. government. Treasuries are considered ...
  5. Bund

    A bond issued by Germany's federal government, or the German word for "bond." Bunds are the German equivalent of U.S. Treasury ...
  6. European Central Bank - ECB

    The central bank responsible for the monetary system of the European Union (EU) and the euro currency. The bank was formed ...
Trading Center
×

You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!