Down-and-Out Put Option

Down-and-Out Put Option: The Bungee Jumper

Cheapen downside protection, risking Knock-out if the prices plunges past the barrier: ideal for a modest downdraft, not a rout.

i. Select Desired Direction [UP/DOWN]

ii. Will (WETH) move ‘a lot’? ( ‘Knock IN’ )

Will (WETH) move ‘not too much’? ( ‘Knock OUT’ )

iii. [UP/DOWN] [Knocks In ( effective ) / Knocks Out ( extinguished )] if (WETH) @ Expiry beyond barrier.

+ / DOWN / OUT

Buy DOWN and OUT and pay premium if you think ETH @ Expiry DOWN from <strike price> and INside ( > ) <barrier>; if NOT, premium lost.

- / DOWN / OUT

Sell DOWN and OUT and earn premium if you think ETH @ Expiry NOT DOWN from <strike price> OR NOT INside ( < ) <barrier>; if NOT, pay strike -

Down-And-Out Put Option Contract

A Down-And-Out Put Option Contract is a contract that gives the buyer (the owner or holder of the contract) the right to sell the Underlying Currency at the specified Strike Price upon exercise of the contract, if the Reference Price is above the Barrier Level. The contract seller has the corresponding obligation to buy the Underlying Currency at the specified Strike Price if the Reference Price is equal or above the Barrier level upon exercise of the contract.

DaO PK, B

Down-and-out put option with strike K and knock-out if ST < B at expiry

Payout at expiry =

If ST < B: zero

If ST ≥ B: max(K -ST, 0)

Eg. Payout of an up-and-in put option on eth/S with K=100, B=85