A lookback option is an exotic option that allows investors to "look back" at the underlying prices occurring over the life of the option and then exercise based on the underlying asset's optimal value. This type of option reduces uncertainties associated with the timing of market entry.

The option's strike price is fixed at purchase. However, the option is not exercised at the market price: In the case of a put, the option can be exercised at the asset's lowest price. The option settles at the selected past market price and against the fixed strike.

The option's strike price is fixed at maturity. For a call, the strike price is fixed at the lowest price reached during the life of the option.

For a put, it is fixed at the highest price.

The option settles at market and against the floating strike. While lookback options are appealing to investors, they can be expensive and are also considered to be quite speculative. Dictionary Term Of The Day.

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Lookback put option financial definition of lookback put option

What is a 'Lookback Option' A lookback option is an exotic option that allows investors to "look back" at the underlying prices occurring over the life of the option and then exercise based on the underlying asset's optimal value. Call Over Exotic Option Call On A Call Compound Option European Option Capped Option Russian Option Vanilla Option Bermuda Option.

Formula for: Value at expiry of a lookback put option with fixed strike

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