A call option on a trading account, giving the holder the right to receive the balance in his account at maturity if it is positive, or zero if it is negative. For example, a trader may invest in a given stock, doing his best to grow the trading account, whilst he is also keen to be insured against losing money over a specific period of time. To do this, the investor can buy a call option on the trading account, where the option premium represents the insurance cost, and the positive balance the option payoff.
As an example, suppose a perfect trader option is purchased by an investor for an upfront premium of 3% of a USD 10 million notional amount, so to insure his trading account against losses over a period of three months from trade date (this period is the option maturity). The two counterparties, i.e. the option buyer and seller, will agree on the allowed position that can be taken by the buyer (such as long or short up to notional amount), and also on the transaction frequency (how many times the buyer can transact a day, say 2 or 3 times). The settlement amount will be either the net gains or nothing.
This option is also referred to as passport option or spot trader option.
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