Up-and-Out Option

An up-and-out option is a specific type of knock-out barrier option where the barrier is set above the current market price of the underlying asset. The option remains active as long as the asset price stays below the upper barrier throughout the contract duration.

If the asset price rises to touch or cross this barrier, the option is immediately cancelled. This structure is typically utilized by investors who want to benefit from moderate price increases but are concerned about the risk of a sharp, parabolic breakout.

It is a cost-effective way to gain exposure to price growth while avoiding the high premium of a vanilla call option. If the market experiences a strong rally, the investor loses the position, reflecting the trade-off between cost and protection.