Knock-In Option

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DEFINITION of 'Knock-In Option'

A latent option contract that begins to function as a normal option ("knocks in") only once a certain price level is reached before expiration.

INVESTOPEDIA EXPLAINS 'Knock-In Option'

Technically, this type of contract is not an option until a certain price is met, so if the price is never reached it is as if the contract never existed. Knock-ins are a type of barrier option that may be either down-and-in option or an up-and-in option.

RELATED TERMS
  1. Barrier Option

    A type of option whose payoff depends on whether or not the underlying ...
  2. Up-and-In Option

    An option that can only be exercised when the price of the underlying ...
  3. Option

    A financial derivative that represents a contract sold by one ...
  4. Knock-Out Option

    An option with a built in mechanism to expire worthless, should ...
  5. Vanilla Option

    A financial instrument that gives the holder the right, but not ...
  6. Down-and-In Option

    A form of barrier option that becomes activated only if the price ...
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