Option Strip Contract

Definition

Option Strip Contract. A strip or sequential set of options with periodic reset dates, such that each period between resets behaves like an individual option (known as a Caplet or Floorlet).

Issues and Challenges

The defining fact is that it is a set of sequential options. So in principal this is a strip of any kind of option. Can you strip forwards? In principal, but usually you would have a Commodity Swap which would be a strip of Forwards. Other strips? Don't always buy a string of caplets and floorlets but buy an individual cap or floor. for IR Options These are always Caps or Floors, that is the option settlement takes the form of the difference between the Strike rate and the designated underlying (observable) rate on the stated dates. Review notes: caps and floors are always strips, but there are strips for other assets as well. SO: There are strips besides Options; There are Option Strips besides IR (Cap and Floor) ones. See eg. in France where you may have a strip of options where the strike is set at each rollover. Details to come by email. In this case it would be an asset option, specifically Equity.

Disclaimer

This entry annotates a FIBO Ontology Class. FIBO is a trademark and the FIBO Ontology is copyright of the EDM Council, released under the MIT Open Source License. There is no guarantee that the content of this page will remain aligned with, or correctly interprets, the concepts covered by the FIBO ontology.