Learn about Barrier Options and download pricing spreadsheets
Barrier options become active (or inactive) when the underlying asset crosses a price threshold. The threshold is also known as the trigger.
- Knock-in options are initially inactive. However, they become active when the barrier is crossed
- Knock-out options are initially active. However, they become inactive once the barrier is crossed
Additionally, Barrier options can be either European or American.
Barrier options are cheaper than European options because of the possibility that the option is terminated if the barrier is crossed.
A standard barrier option has a barrier that is out-of-the-money. A reverse barrier option has a barrier that is in-the-money.