In connection with a ladder option or similar-type option (e.g., a shout option), a rung is a trigger strike at which the strike periodically resets when the underlying (price or rate) hits the pre-specified or later-specified triggers (trigger levels), while locking in the profit between the old and the new strike. The trigger strikes look like “rungs” on a ladder.
Rungs can be used to determine the option’s payout at expiration: the ladder option’s payoff will be determined as either the difference between the underlying spot and the original strike, or the difference between the highest rung reached and the original strike, whichever is higher.
A rung is also referred to as a ladder rung.
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