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A linked pair of knock-out options with unusual rebate and payout features. Specifically, the put and call form a strangle, with the strike of each component serving as the knock-out trigger for the other. If this trigger is breached, the out of the money option expires immediately and the strangle seller must refund the entire strangle premium to the buyer. The at or in the money option remains active unless its trigger is touched later. The appeal of this mechanism to the seller is the relatively high strangle premium. If the seller is correct in forecasting that the underlying will stay in the range, his return will be excellent. If the seller is wrong, he loses the cushion provided by the premium and may lose much more if the underlying moves well beyond a strike. See also Double Barrier Option. The Knock-Out Seagull (diagram) is a variation.
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