A knock-out option on a notional amount that is not specified on the trade date, but is rather dependent on the amount of time a prespecified trigger rate/ price is not breached or traded through. More specifically, for each day the underlying remains away from the trigger over the option’s life, the notional amount will decrease or increase by a preset amount. However, if the trigger is broken through, any ongoing adjustment – already set in motion- to the notional amount would be stopped.
This option provides better protection than otherwise an identical knock-out barrier option because its notional is adjustable, and hitting the knock-out trigger doesn’t affect any amount that has already accumulated.
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