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Ladder option
An option that yields a return in stages, each time the price of the underlying reaches predetermined price levels or rungs, so that the gain is locked in every time the price reaches a new rung even if the underlying falls back below these levels.
(1) For example, consider a ladder option with an underlying price of 100 when it comes to life, an exercise price of 110 and rungs at 120, 130 and 140. A gain of 10 will be locked in for the holder as soon as the price of the underlying reaches 120 (120-110). If the price of the underlying were to reach 140 before the option expired, the holder could consider a gain of at least 30 (140-110) to be locked in, even if the underlying subsequently fell back below this level.
(2) The ladder option is a specific type of path-dependent option.
Translations
Synonyms and variations
- Lock-step option
- Step-lock option