Lookback Option
Definition of 'Lookback Option'An exotic option that allows investors to "look back" at the underlying prices occurring over the life of the option and then exercise based on the underlying asset's optimal value. This type of option reduces uncertainties associated with the timing of market entry. |
|
Investopedia explains 'Lookback Option'There are two types of lookback options:1. Fixed: The option's strike price is fixed at purchase. However, the option is not exercised at the market price: in the case of a call, the option holder can look back over the life of the option and choose to exercise at the point when the underlying asset was priced at its highest over the life of the option. In the case of a put, the option can be exercised at the asset's lowest price. The option settles at the selected past market price and against the fixed strike. 2. Floating: The option's strike price is fixed at maturity. For a call, the strike price is fixed at the lowest price reached during the life of the option. For a put, it is fixed at the highest price. The option settles at market and against the floating strike. While lookback options are appealing to investors, they can be expensive and are also considered to be quite speculative. |
Related Definitions
Articles Of Interest
-
Getting Acquainted With Options Trading
Learn more about stock options, including some basic terminology and the source of profits. -
Options Basics Tutorial
Discover the world of options, from primary concepts to how options work and why you might use them. -
What do all of the letters in a stock option ticker symbol mean?
The option ticker explains four main things about the option: the underlying stock, whether it is a call or a put option, the expiration month and the strike price. An option ticker is quoted ... -
Making It Big On Wall Street
Read about some of the most glamorous Wall Street jobs and what it takes to land one. -
Quants: The Rocket Scientists Of Wall Street
Blend math, finance and computer skills to command a high - and well deserved - salary. -
Build A Baby Berkshire
Get a piece of Warren Buffett's profit by using Form 13F to coattail his picks. -
Cash: A Call Option With No Expiration Date
Cash is generally regarded as a drag on investment returns, but sometimes it may be preferable to hold a substantial cash amount instead of investing it in other assets. This is because having ... -
Should You Add A Securities License To Your Qualifications?
Clients love planners who sell securities, but a securities license takes a lot of work. Learn if the stress and study are worth it. -
Business Grads, Land Your Dream Job
Companies are in need of strategic candidates, not walking resumes. Find out how to set yourself apart from the pack and land the business career you've always wanted. -
Exploring Non-Dollar Currencies For Forex Trading
Learn how investments in foreign currencies can diversify your portfolio.
Free Annual Reports