Up-And-Out Option
Categories: Company Management
See: Up-and-In Option.
In the movies, the missions received by spies and other mysterious types always seem to end with this line: “This message will self-destruct in five seconds.” Well, an “up-and-out” option is kind of like that, except instead of self-destructing in five seconds, it self-destructs if the price of its underlying security hits or goes above a certain barrier price before the option expires.
Yeah...if we buy an up-and-out option of a $10 security with a $10.25 barrier, and the strike price hits $10.25 before the option expires on June 30, it...disappears. It’s like it never even existed. If it doesn’t hit the barrier price, it just acts like a normal option—typically called a “vanilla” option—that we can exercise before the expiration date if we want to…but we don’t have to.
