Balloon Option
An option whose notional payments increase significantly after a set threshold is broken. Investopedia Says:
Commonly used in foreign exchange markets, these options provide greater leverage to the holder. The main idea behind the balloon option is that after the threshold is exceeded, the regular payout is increased. For example, let's say that the threshold is $100. After the underlying exceeds this amount, rather than paying the regular dollar-for-dollar amount, the option payment would balloon to $2 for every $1 change against the strike price. Related Terms:
American Option
Balloon Loan
Bermuda Option
European Option
Mid-Atlantic Option
Notional Value
Option
Strike Price
Writer |