Rainbow Option

Dictionary Says

Definition of 'Rainbow Option'

A single option linked to two or more underlying assets. In order for the option to pay off, all the underlying assets must move in the intended direction.
Investopedia Says

Investopedia explains 'Rainbow Option'

The underlying securities can have different characteristics, such as expiry date and strike price, but all must move in the way the option holder has bet they will.

Here's a sports-betting analogy that demonstrates a rainbow option: suppose you're at a baseball tournament with three fields backing one another. One game is halfway through, a second is just starting and a third starts in an hour. A type of bet that's analogous to a rainbow option is one that earns you a profit if you pick all three winners, but gets you  nothing if any one team you pick is a loser.

Sign Up For Term of the Day!

Try Our Stock Simulator!

Test your trading skills!

Related Definitions

  1. Exotic Option

    An option that ...
  2. Expiration Date

    The last day ...
  3. Option

    A financial ...
  4. Vanilla Option

    A financial ...
  5. Basket Option

    A type of ...
  6. Strike Price

    The price at ...
  7. Underlying

    1. In ...
  8. Everest Option

    A type of exotic ...
  9. Volatility

    1. A statistical ...
  10. Risk Capital

    Investment funds ...

Articles Of Interest

  1. Options Basics Tutorial

    Discover the world of options, from primary concepts to how options work and why you might use them.
  2. Retirement Savings Tips For 35- To 44-Year-Olds

    Learn how the "sandwich generation" can save for retirement while taking care of their kids and parents.
  3. Derivatives 101

    Learn how to use this type of investment as an alternative way to participate in the market.
  4. Risk Tolerance Only Tells Half The Story

    Just because you're willing to accept a risk, doesn't mean you always should.
  5. Finding Your Investing Comfort Zone

    Choosing the right investments for you is the best way to feel comfortable with your portfolio.
  6. Investors: Rely On Your Gut

    Find out how your personality and natural instincts can direct your investment choices.
  7. Simplify Your Portfolio

    Faced with an overabundance of choices, many investors forget to stick to the basics.
  8. Hedging With ETFs: A Cost-Effective Alternative

    The benefits of ETFs for hedging are clear and investors of all sizes are taking notice.
  9. Minis Provide Low-Cost Entry To Futures Market

    These contracts provide access to commodities without a huge capital commitment.
  10. Pin Down Stock Price With Real Options

    How can you assign a value to what a company may do with its business in the future? We explain how it works.

comments powered by Disqus
Recommended
Loading, please wait...
Trading Center