Knock-Ins
Knock-ins are a type of financial derivative that is used to hedge against market volatility. They are similar to knock-out options, but with a key difference: the knock-in option does not become active until a certain price level is reached. This means that the investor does not have to pay the full premium for the option until the price level is reached. This can be beneficial for investors who are looking to protect their investments from market volatility.
History of Knock-Ins
The concept of knock-ins was first introduced in the late 1980s by the Chicago Board Options Exchange (CBOE). The idea was to create a type of option that would be more cost-effective than traditional options. The knock-in option was designed to be a cheaper alternative to traditional options, as the investor would only have to pay the full premium if the price level was reached. This allowed investors to hedge against market volatility without having to pay the full premium.
Since then, knock-ins have become increasingly popular among investors. They are now used by many investors to hedge against market volatility and to protect their investments. They are also used by traders to speculate on the direction of the market.
Comparison Table
| Type of Option | Premium | Activation |
|---|---|---|
| Knock-in | Partial | Price Level Reached |
| Knock-out | Full | Price Level Not Reached |
Summary
Knock-ins are a type of financial derivative that is used to hedge against market volatility. They are similar to knock-out options, but with a key difference: the knock-in option does not become active until a certain price level is reached. This means that the investor does not have to pay the full premium for the option until the price level is reached. This can be beneficial for investors who are looking to protect their investments from market volatility.
For more information about knock-ins, investors can visit websites such as Investopedia, The Balance, and Investing.com.
See Also
- Options
- Derivatives
- Hedging
- Volatility
- Options Trading
- Options Strategies
- Option Pricing
- Option Greeks
- Option Spreads
- Option Chains
