Floating Strike Price

A floating strike price is a feature in exotic options where the strike price is not fixed at the inception of the contract but is instead determined by the market price of the underlying asset at a future date or during a specific observation period. In the context of lookback options, the strike is typically set to the minimum or maximum price observed during the lookback window, ensuring the option is always in-the-money at expiration.

This design provides maximum protection against adverse price movements, as the payoff is inherently linked to the best performance the asset achieved. Because this structure guarantees a favorable strike, these options carry higher premiums than standard fixed-strike derivatives.

They are highly effective for institutional investors looking to capture the full upside of a trend without the risk of the strike price becoming unattainable.