A type of binary options whose stated strike price is different from its payoff strike. That is, there is a gap (timing difference) between the price at which the option can be exercised and the price at which it would produce a payoff to the holder. The strike price determines the size of the option’s payoff, while a gap amount determines whether the payoff would be made or not. For example, consider a pay later call option where the underlying’s price is 100, the stated strike price is 100, and the payoff strike is 105. The option can be exercised when the underlying’s price reaches or crosses 100. However, it pays nothing unless the underlying reaches or crosses 105.
This option is also known as a gap option or a contingent premium option.
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