DEFINITION of 'Cliquet'

An extended exotic option that periodically settles and resets its strike price at the level of the underlying during the time of settlement. Each forward start option comprising the cliquet enters into force when the previous option expires. Investors can opt to receive their payout when each option expires or wait until the entire series has played out.

Also known as "ratchet option" or "cliquet option."

BREAKING DOWN 'Cliquet'

For example, a three-year cliquet option with a strike of 1,000 would expire worthless on the first year if the underlying was to be 900. This value ($900) would then be the new strike price for the following year and should the underlying on the settlement be 1,200, the contract holder would receive a payout and the strike would reset to this new level. Higher volatility provides better conditions for investors to earn profits.

RELATED TERMS
  1. Forward Start Option

    The advance purchase of a put or call option with a strike price ...
  2. Currency Option

    A contract that grants the holder the right, but not the obligation, ...
  3. Strike Price

    The price at which a specific derivative contract can be exercised. ...
  4. Average Strike Option

    A type of Asian option in which the strike price is based on ...
  5. Call Option

    An agreement that gives an investor the right (but not the obligation) ...
  6. Option

    A financial derivative that represents a contract sold by one ...
Related Articles
  1. Trading

    Give Yourself More Options With Weekly and Quarterly Options

    Weekly and quarterly options were introduced to give a greater choice of option expirations to investors, and enable them to trade more efficiently.
  2. Trading

    American Vs. European Options

    American- and European-style options have similar characteristics but the differences are important to learn.
  3. Investing

    Why Options Trading Is Not for the Faint of Heart

    Trading options is not easy and should only be done under the guidance of a professional.
  4. Trading

    A Newbie's Guide to Reading an Options Chain

    Learning to understand the language of options chains will help you become a more effective options trader.
  5. Trading

    The importance of time value in options trading

    Move beyond simply buying calls and puts, and learn how to turn time-value decay into potential profits.
  6. Trading

    Getting Started In Forex Options

    Stocks are not the only securities underlying options. Learn how to use FOREX options for profit and hedging.
  7. Trading

    The Basics of Options Profitability

    Learn the various ways traders make money with options, and how it works.
  8. Trading

    The Anatomy of Options

    Find out how you can use the "Greeks" to guide your options trading strategy and help balance your portfolio.
RELATED FAQS
  1. What happens when a security reaches its strike price?

    Learn more about the moneyness of stock options and what happens when the underlying security's price reaches the option ... Read Answer >>
  2. How do I change my strike price once the trade has been placed already?

    Learn how the strike prices for call and put options work, and understand how different types of options can be exercised ... Read Answer >>
  3. How does the term 'in the money' describe the moneyness of an option?

    Find out what in the money means about the moneyness of call or put options and what it indicates about the relationship ... Read Answer >>
  4. Why do options with the same underlying stock and strike prices trade for different ...

    You would think that two options with the same underlying stock and strike prices would trade at the same price, but interestingly ... Read Answer >>
Hot Definitions
  1. Compound Annual Growth Rate - CAGR

    The Compound Annual Growth Rate (CAGR) is the mean annual growth rate of an investment over a specified period of time longer ...
  2. Net Present Value - NPV

    Net Present Value (NPV) is the difference between the present value of cash inflows and the present value of cash outflows ...
  3. Price-Earnings Ratio - P/E Ratio

    The Price-to-Earnings Ratio or P/E ratio is a ratio for valuing a company that measures its current share price relative ...
  4. Internal Rate of Return - IRR

    Internal Rate of Return (IRR) is a metric used in capital budgeting to estimate the profitability of potential investments.
  5. Limit Order

    An order placed with a brokerage to buy or sell a set number of shares at a specified price or better.
  6. Current Ratio

    The current ratio is a liquidity ratio that measures a company's ability to pay short-term and long-term obligations.
Trading Center