Himalayan Option

A A A

DEFINITION

An exotic equity option belonging to a class known as mountain range options. Himalayan options are based on a basket of underlying securities, as opposed to the typical listed (vanilla) option, which has one underlying security.



INVESTOPEDIA EXPLAINS

The payout for a Himalyan option is based on the average performance of the underlying assets over the life of the option. Periodic measurement dates are established and on each date, a payout is made based on the best-performing security in the basket. This security is then removed from the basket. This process continues until a single security is left. The option's total payout is the sum of all the periodic payments.

Himalayan options can be extremely difficult to properly value because the payout is linked to a basket of securities. The content and volatility of the basket will change over time as securities are periodically eliminated. This is why Himalayan options are only held by large institutional investors, typically as a long-term hedge.

Asian options also have payouts based on average performance over the life of an option, but just one underlying security is used.


RELATED TERMS
  1. Altiplano Option

    A type of mountain range option that offers a specific coupon payout in addition ...
  2. Underlying

    1. In derivatives, the security that must be delivered when a derivative contract, ...
  3. Mountain Range Options

    A family of exotic options based on multiple underlying securities. Mountain ...
  4. Everest Option

    A type of exotic equity option belonging to a class known as mountain range ...
  5. Asian Option

    An option whose payoff depends on the average price of the underlying asset ...
  6. Vanilla Option

    A financial instrument that gives the holder the right, but not the obligation, ...
  7. Multibank Holding Company

    A company that owns or controls two or more banks. Mutlibank holding companies ...
  8. Short Put

    A type of strategy regarding a put option, which is a contract that allows (but ...
  9. Wingspread

    To maximize potential returns for certain levels of risk (while necessarily ...
  10. Subprime Meltdown

    The sharp increase in high-risk mortgages that went into default beginning in ...
Related Articles
  1. Exotic Options: A Getaway From Ordinary ...
    Options & Futures

    Exotic Options: A Getaway From Ordinary ...

  2. The Barnyard Basics Of Derivatives
    Investing Basics

    The Barnyard Basics Of Derivatives

  3. Are Derivatives A Disaster Waiting To ...
    Options & Futures

    Are Derivatives A Disaster Waiting To ...

  4. Are Derivatives Safe For Retail Investors?
    Options & Futures

    Are Derivatives Safe For Retail Investors?

  5. Introduction To Weather Derivatives
    Options & Futures

    Introduction To Weather Derivatives

  6. Hedge Funds Hunt For Upside, Regardless ...
    Options & Futures

    Hedge Funds Hunt For Upside, Regardless ...

  7. What Is Market Efficiency?
    Active Trading

    What Is Market Efficiency?

  8. Getting On The Right Side Of The P/E ...
    Fundamental Analysis

    Getting On The Right Side Of The P/E ...

  9. Herding Tendencies Among Analysts
    Investing Basics

    Herding Tendencies Among Analysts

  10. Selling Premium As Small Caps Play Catch ...
    Options & Futures

    Selling Premium As Small Caps Play Catch ...

comments powered by Disqus
Hot Definitions
  1. Amplitude

    The difference in price from the midpoint of a trough to the midpoint of a peak of a security. Amplitude is positive when calculating a bullish retracement (when calculating from trough to peak) and negative when calculating a bearish retracement (when calculating from peak to trough).
  2. Ascending Triangle

    A bullish chart pattern used in technical analysis that is easily recognizable by the distinct shape created by two trendlines. In an ascending triangle, one trendline is drawn horizontally at a level that has historically prevented the price from heading higher, while the second trendline connects a series of increasing troughs.
  3. National Best Bid and Offer - NBBO

    A term applying to the SEC requirement that brokers must guarantee customers the best available ask price when they buy securities and the best available bid price when they sell securities.
  4. Maintenance Margin

    The minimum amount of equity that must be maintained in a margin account. In the context of the NYSE and FINRA, after an investor has bought securities on margin, the minimum required level of margin is 25% of the total market value of the securities in the margin account.
  5. Leased Bank Guarantee

    A bank guarantee that is leased to a third party for a specific fee. The issuing bank will conduct due diligence on the creditworthiness of the customer looking to secure a bank guarantee, then lease a guarantee to that customer for a set amount of money and over a set period of time, typically less than two years.
  6. Degree Of Financial Leverage - DFL

    A ratio that measures the sensitivity of a company’s earnings per share (EPS) to fluctuations in its operating income, as a result of changes in its capital structure. Degree of Financial Leverage (DFL) measures the percentage change in EPS for a unit change in earnings before interest and taxes (EBIT).
Trading Center