Deferred Strike or Strike Price Option

Deferred Strike Option
An option that permits the buyer of the contract to set the strike price or rate at a fixed ratio to the spot price or rate at any time during an interval after the trade date. If the buyer does not set the strike earlier, it is determined by the spot at the end of the deferred start period. A deferred strike option is usually purchased when the buyer feels that current levels of volatility are relatively low, and there is an opportunity to obtain a commitment to issue an option at a lower implied volatility than the buyer expects to prevail when he wants to fix the strike on the option. The deferred strike option's premium as a percent of the ultimate strike and the other terms of the option contract are determined on the trade date. See Deferred Start Option, Exotic Options, Shout Option (1).

Glossary * D