Forward Start Option

AAA

DEFINITION of 'Forward Start Option'

The advance purchase of a put or call option with a strike price that will be determined at a later date, typically when the option becomes active. A forward start option becomes active at a specified date in the future; however, the premium is paid in advance, and the time to expiration and the underlier are established at the time the forward start option is purchased.

INVESTOPEDIA EXPLAINS 'Forward Start Option'

A group of consecutive forward start options is called a ratchet option or cliquet option. In this instance, the first forward start option is active immediately, and each successive forward start option becomes active when the previous one expires. Forward start options are often priced using a calculation known as the Rubenstein formula.

RELATED TERMS
  1. Call

    1. The period of time between the opening and closing of some ...
  2. Cliquet

    An extended exotic option that periodically settles and resets ...
  3. Option

    A financial derivative that represents a contract sold by one ...
  4. Exercise Price

    The price at which the underlying security can be purchased (call ...
  5. Option Chain

    A form of quoting options prices through a list of all of the ...
  6. Full Ratchet

    An anti-dilution provision that, for any shares of common stock ...
Related Articles
  1. Options & Futures

    What You Need To Know About Binary Options Outside The U.S.

    Binary or digital options are a simple way to trade price fluctuations in multiple global markets.
  2. Options & Futures

    Introduction To Put Writing

    Learn about a strategy that may be appropriate if you have a positive outlook on a stock.
  3. Options & Futures

    Reducing Risk With Options

    If you want to use leverage to your advantage, you must know how many contracts to buy.
  4. Options & Futures

    An Introduction To Gamma-Delta Neutral Option Spreads

    Find the middle ground between conservative and high-risk option strategies.
  5. Options & Futures

    The Basics Of Covered Calls

    Learn how this simple options contract can work for you, even when your stock isn't.
  6. Options & Futures

    An Introduction To Weekly Options

    The weeklys are a powerful tool that can create quick profits or quick losses, depending on how you use them.
  7. Options & Futures

    Should Your Options Go Naked?

    Compare naked strategies to credit spreads and see if the unlimited risk of going naked is worth it.
  8. Options & Futures

    Options Trading Volume And Open Interest

    Learn how these two statistics can give you an edge in trading options.
  9. Options & Futures

    The History Of Options Contracts

    Options and futures didn't originate with Wall Street power brokers. In fact, it all started with rice.
  10. 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.

You May Also Like

Hot Definitions
  1. Weather Insurance

    A type of protection against a financial loss that may be incurred because of rain, snow, storms, wind, fog, undesirable ...
  2. Portfolio Turnover

    A measure of how frequently assets within a fund are bought and sold by the managers. Portfolio turnover is calculated by ...
  3. Commercial Paper

    An unsecured, short-term debt instrument issued by a corporation, typically for the financing of accounts receivable, inventories ...
  4. Federal Funds Rate

    The interest rate at which a depository institution lends funds maintained at the Federal Reserve to another depository institution ...
  5. Fixed Asset

    A long-term tangible piece of property that a firm owns and uses in the production of its income and is not expected to be ...
  6. Break-Even Analysis

    An analysis to determine the point at which revenue received equals the costs associated with receiving the revenue. Break-even ...
Trading Center