One-Touch Option

AAA

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.

INVESTOPEDIA EXPLAINS '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.

RELATED TERMS
  1. Barrier Option

    A type of option whose payoff depends on whether or not the underlying ...
  2. Expiration Date (Derivatives)

    The last day that an options or futures contract is valid. When ...
  3. Knock-In Option

    A latent option contract that begins to function as a normal ...
  4. Digital Option

    An option whose payout is fixed after the underlying stock exceeds ...
  5. Forex - FX

    The market in which currencies are traded. The forex market is ...
  6. Strike Price

    The price at which a specific derivative contract can be exercised. ...
Related Articles
  1. Options & Futures

    Options Basics Tutorial

    Discover the world of options, from primary concepts to how options work and why you might use them.
  2. Forex Education

    How To Trade Forex On News Releases

    When economic data comes out, it can have a marked impact on the currency market. Find out how to profit.
  3. Options & Futures

    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 ...
  4. Options & Futures

    What's the difference between a regular option and an exotic option?

    Before learning about exotic options, you should have a fairly good understanding of regular options. Both types of options share the idea of having the right to buy or sell an asset in the future, ...
  5. Options & Futures

    What is the difference between arbitrage and hedging?

    Dive into two very important financial concepts: arbitrage and hedging. See how each of these strategies can play a role for savvy investors.
  6. Options & Futures

    A Detailed Look Into China's Options Market

    As the Chinese options market gradually takes shape, we provide an overview, including details of the initial phase and building blocks, primary beneficiaries, the impact on the overall financial ...
  7. Options & Futures

    How do you trade put options on E*TRADE?

    Learn all about put option trading at E*TRADE. Explore margin accounts and become familiar with the different types of option writing.
  8. Trading Systems & Software

    How do you trade put options on Ameritrade?

    Learn about option trading with TD Ameritrade. Explore the different types of options and their possible impacts on the investors that write them.
  9. Options & Futures

    Avoid These 10 Mistakes When Trading in Cheap Options

    Cheap options can be very risky. Reduce your risk by avoiding these 10 common mistakes in trading in cheap options.
  10. Options & Futures

    What is the difference between a short position and a short sale?

    Learn how short selling and short positioning are different, specifically in regards to the nature of the commodity being bought and sold.

You May Also Like

Hot Definitions
  1. Multiplier Effect

    The expansion of a country's money supply that results from banks being able to lend. The size of the multiplier effect depends ...
  2. Command Economy

    A system where the government, rather than the free market, determines what goods should be produced, how much should be ...
  3. Prospectus

    A formal legal document, which is required by and filed with the Securities and Exchange Commission, that provides details ...
  4. Treasury Bond - T-Bond

    A marketable, fixed-interest U.S. government debt security with a maturity of more than 10 years. Treasury bonds make interest ...
  5. Weight Of Ice, Snow Or Sleet Insurance

    Financial protection against damage caused to property by winter weather specifically, damage caused if a roof caves in because ...
  6. Weather Insurance

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