Knock-In Option
📈 Investing
Quick Definition
A knock-in option is a type of barrier option that only comes into existence if the underlying asset reaches a certain price.
Examples
- 1A trader buys a knock-in call option with a barrier at $50. If the stock price hits $50, the option activates, allowing the trader to buy the stock at a predetermined price.
- 2An investor purchases a knock-in put option on a commodity. The option will only become active if the commodity's price drops to a specified barrier level, providing a hedge against price declines.
- 3A company uses knock-in options to manage currency risk on foreign transactions. The option is structured to activate only if the exchange rate reaches a certain unfavorable level, protecting the company's financials.
Tags
optionsderivativesfinancial-instrumentsrisk-managementinvestment-strategy
Related Terms
Other terms you might find helpful
Derivative
A derivative is a financial security whose value is dependent upon or derived from an underlying asset or group of assets.
Put Option
A put option is a financial contract that gives the holder the right, but not the obligation, to sell a specified amount of an underlying asset at a predetermined price within a specified time frame.
Quick Info
Category:Investing
Difficulty:intermediate
Last Updated:6/19/2025