One-Touch Option

DEFINITION of 'One-Touch Option'

A type of exotic option that gives an investor a payout once the price of the underlying asset reaches or surpasses a predetermined barrier. This type of option allows the investor to set the position of the barrier, the time to expiration and the payout to be received once the barrier is broken.

BREAKING DOWN 'One-Touch Option'

Only two outcomes are possible with this type of option: 1) the barrier is breached and the trader collects the full payout agreed upon at the outset of the contract, or 2) the barrier is not breached and the trader loses the full premium paid to the broker.

This type of option is useful for traders who believe that the price of an underlying asset will exceed a certain level in the future, but who are not sure that the higher price level is sustainable. Because a one-touch option only has one barrier level, it is generally slightly less expensive than a double one-touch option. These types of options are becoming more popular with traders in the commodity and forex markets.

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