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Turbo warrants for Newbies
Issued on November 20 2010 par Strategies-options.com

Turbo warrants explained in Layman's terms.
Knock Out Options, sometimes called Turbo warrants, are simple financial products. Easy to understand, easy to trade.



I - Knock Out Options are....Options

As for any option, Knock Out Options are asymetrical instruments.

- For a small stake, they enable to earn lots of money
- They are traded on financial markets by institutions and traders
- It's easy to find a bid-ask spread



II - An added feature : the barrier

As far as the underlying doesn't hit the barrier (a spot level defined before the trade), the knock out options seems to be a vanilla option.
If the underlying hit the barrier, the option blow out : its worth becomes zero.



III - A price much lower as for the vanilla

Because the barrier could be hit, a knock out option is worth a lower price. Thus a better yield if the barrier is not crossed.



IV - Graph


2D's payoff for a barrier option call



Next : Turbo Warrant : A First Attempt
Previous : Warrants


Other Derivatives - INDEX
Other Derivatives - CHAPTER I
Other Derivatives - CHAPTER II
Other Derivatives - CHAPTER III
Other Derivatives - CHAPTER IV

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