LookBack Options - Definition
LookBack Options, also known as Hindsight Options or Mocatta Options, are exotic options
which allows the holder to "Look Back" at the price action of the underlying asset
during expiration to decide the optimal price at which to exercise
the Lookbacks Options.
LookBack Options - 2 Types
There are 2 types of LookBack Options; Fixed Strike LookBack Options and Floating Strike LookBack Options.
LookBack Options - Fixed Strike LookBack Options
Fixed Strike LookBack Options pays off in profit the difference between the most favorable price and a fixed strike price.
Fixed Strike LookBack Options are settled only in cash.
LookBack Options - Floating Strike LookBack Options
On top of the privilege of exercising at the most favorable price upon expiration, Floating Strike LookBack Options
uses not a fixed basis price against the most favorable price in profit calculations but the WIDEST price difference attained during the life of
the options!
LookBack Options - LookBack Call Options & LookBack Put Options
LookBack Call Options - Allows one to buy the underlying asset at the most favorable price attained before expiration.
LookBack Put Options - Allows one to sell the underlying asset
at the most favorable price attained before expiration.
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LookBack Options - Where Is It Traded?
LookBack Options
are traded only in OTC markets.
LookBack Options - European & American Style
Like plain vanilla options, LookBack Options have both European style, which allows the holder to exercise the LookBack Options only during
expiration, and American style, which allows the holder to exercise the LookBack Options anytime before expiration.
Advantages of LookBack Options
1. Completely eliminates market entry and exit timing problems.
2. Completely maximizes profits within the life of the options.
Disadvantages of LookBack Options
1. Expensive.
2. Not publicly traded.
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