Lookback Option

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.

There are two types of lookback options:

1. Fixed: The option's strike price is fixed at purchase. However, the option is not exercised at the market price: in the case of a call, the option holder can look back over the life of the option and choose to exercise at the point when the underlying asset was priced at its highest over the life of the option. 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.

2. Floating: 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.


Investment dictionary. . 2012.

Look at other dictionaries:

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  • Lookback option — An option that allows the buyer to choose as the option strike price any price of the underlying asset that has occurred during the life of the option. If a call, the buyer will choose the minimal price, whereas if a put, the buyer will choose… …   Financial and business terms

  • lookback option — Fin an option whose price the buyer chooses from all of the prices that have existed during the option’s life …   The ultimate business dictionary

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  • Option américaine — Option Une option est un produit dérivé, en finance de marché, qui donne le droit, lorsqu on l achète, ou l obligation, lorsqu on la vend, d acheter ou de vendre un actif financier à un prix fixé à l avance (strike) pendant un temps donné ou à… …   Wikipédia en Français

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  • Lookback/Forward Option —    An option that grants the holder the retroactive right to set the strike at the lowest price (on a call) or at the highest price (on a put) reached by the underlying instrument within the lookback period.    ► See also Option …   Financial and business terms

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