Outperformance Option

AAA

DEFINITION of 'Outperformance Option'

An exotic call option that's value is determined by the differing performance of two underling assets or securities. The holder gains on the amount one asset outperforms another, both of which are pre-determined. These options are typically European-style, settled in cash, and traded in the over-the-counter market.

Also referred to as "margrabe option".

INVESTOPEDIA EXPLAINS 'Outperformance Option'

For example an investor may purchase an outperformance option, where they gain if the S&P 500 outperforms the FTSE 100 over a six-month period. If at the end of the six months the S&P 500 outperforms the FTSE 100, the option holder will gain. However, if the S&P has underperformed the FTSE 100 over this time period, the option will expire worthless.

RELATED TERMS
  1. European Option

    An option that can only be exercised at the end of its life, ...
  2. Exotic Option

    An option that differs from common American or European options ...
  3. Expiration Date

    The last day that an options or futures contract is valid. When ...
  4. FTSE

    A company that specializes in index calculation. Although not ...
  5. Option

    A financial derivative that represents a contract sold by one ...
  6. Standard & Poor's 500 Index - S&P ...

    An index of 500 stocks chosen for market size, liquidity and ...
Related Articles
  1. Options Basics Tutorial
    Options & Futures

    Options Basics Tutorial

  2. Stock Option Expiration Cycles
    Options & Futures

    Stock Option Expiration Cycles

  3. Option Spread Strategies
    Options & Futures

    Option Spread Strategies

  4. The Basics of Options Profitability
    Options & Futures

    The Basics of Options Profitability

comments powered by Disqus
Hot Definitions
  1. Debit Spread

    Two options with different market prices that an investor trades on the same underlying security. The higher priced option ...
  2. Odious Debt

    Money borrowed by one country from another country and then misappropriated by national rulers. A nation's debt becomes odious ...
  3. Takeover

    A corporate action where an acquiring company makes a bid for an acquiree. If the target company is publicly traded, the ...
  4. Harvest Strategy

    A strategy in which investment in a particular line of business is reduced or eliminated because the revenue brought in by ...
  5. Stop-Limit Order

    An order placed with a broker that combines the features of stop order with those of a limit order. A stop-limit order will ...
  6. Pareto Principle

    A principle, named after economist Vilfredo Pareto, that specifies an unequal relationship between inputs and outputs. The ...
Trading Center