Payout Protected Option

A put or call with a strike adjustment feature to compensate for periodic cash payouts such as dividends. In the conventional option market, which preceded the introduction of listed stock options in the United States, put and call strikes were reduced by the amount of cash dividends paid on the stock while the option was outstanding. Today, payout protected options are usually designed to provide protection from unusual payouts, but not from ordinary cash dividends.

Glossary * P