Exotic Options - Lookback Options


This page is part of the Wikinvest Guide to Options. Related articles within this guide include:

Lookback Options are options that give the holder the right to buy (or sell) the underlying asset at it's lowest (or highest) price over a specified period. There are two different types of lookback options that vary in how their strike price is set. A "fixed" lookback option has a strike price that is on the purchase date. The holder can then exercise the option at maturity using the optimal price of the underlying asset over the lifetime of the option. For instance, in the case of a fixed lookback call option the holder would choose the highest price of the underlying asset over the option lifetime and exercise the option at the fixed strike price. A "floating" lookback option is similar, however the option's strike price is determined at maturity and is set to the lowest (in the case of a call) price of the underlying asset over the option lifetime.

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