It stands for knock-out option; an option that automatically deactivates or expires only when a certain price of its underlying (disadvantageous to the option seller) is hit. For example, an investor may sell a knock-out option to sell a share of stock for a strike price of 20 dinars which knocks out at 22 dinars. If the stock price doesn’t reach 22 dinars over the life of the option, the option will still to exist. But if the stock price reaches the knock-out price, the option deactivates and becomes worthless. Almost in most cases, the knock-out feature causes the option holder to lose the premium paid to the writer. However, with some type of knock-out options, known as a rebate barrier option, part of the premium is refunded to the holder.
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