DEFINITION of 'Average Strike Option'

A type of Asian option in which the strike price is based on an average of the spot rate over a period of time. The dates used to calculate the average strike price cover the life of the option, and are referred to as the "fixings". When the expiration date of the average strike option is reached, the option is considered in the money if the spot rate is higher than the average strike.

BREAKING DOWN 'Average Strike Option'

Most average strike options give equal weight to each day that the spot rate is checked to compute the average strike, but some versions allow the weighting to be adjusted. Investors purchase average strike options because of its relatively lower volatility when compared to non-average options, since the strike price is calculated over a period of time rather than predetermined.

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