What is a barrier option?
In investing, the possibility of a contract that grants the buyer the right to choose from or sell an asset, such as a share at agreed prices in the future. The possibility of barrier is a special kind of possibility where the right to purchase or sale depends on the designated change that happens with the price of the shares on which the possibility is based. A simple example is when the investor wishes to buy the opportunity to buy shares in a certain company at a specified price, but only if the actual stock price rises above a certain level. Because the possibilities of the barrier are granted to the investor less rights than ordinary options, the prices of the option barrier are always lower than the equivalent option for the same shares without a barrier.
There are two main variations of barrier options, "in" and "out". The "in" options are initially inactive, that is, the investor initially does not have the right to a basic share, so the possibility is actually worthless. If the cost of the base reaches the price in the barrier option and then the choice is activated. If the basic share of NikdY does not reach the price of the option during the life of the possibility, expires without value.
"Out" behaves in the opposite way. Such a possibility will begin life as an active option that can be applied. Then, if the background proportion crosses the specified barrier, whether up or down, depending on the exact barrier that has been set, the possibility expires and becomes zero.
Barrier discount is a variation of this type of contract. In this type of possibility, the contract includes a clause in which it states that the payment will be carried out to the investor under certain conditions. This would happen if the basic share on which the possibility is based on the experience of a barrier event, that is, exceeds that it exceeds predefined price levels.
The double barrier of the other variations. In this contract, two separate barrier events are entered rather than just one event. With the possibility of "in" with a double barrier, the investor bet that the price of the underlying shareIt reaches one of the awards of the barrier. With the option of "out" with a double barrier, it is the opposite. The investor bet that the stock price will remain between the two prices and will not reach either of them.