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Old 08-01-2012, 08:34 PM
Shakeela Shakeela is offline
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Default Question about knock in and knock out options

Hey everyone - just a quick question that I can't find the answer to.

If we have a down and out call option with barrier 65, for example, and the current price of the stock is, say 55, with strike 75.

Is this option worthless since the stock price is already below the barrier, or does it still pay as long as the price ends above 75 and also never goes above 55 then comes back down below 55 during the duration of the call.

Thanks for your help.
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Old 08-01-2012, 08:54 PM
BLBarK BLBarK is offline
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In that case, the down-and-out call would have had to be issued at some time in the past (when the stock price was above 65). Since the barrier was indeed hit, the option would be deemed worthless.
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Old 08-02-2012, 01:44 PM
Shakeela Shakeela is offline
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Alright - Thanks for your help.
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