Hi,
I searched on Google, but was shocked how little info I could get from there.
I read in a forum that large players in the market look at Barrier Options that are near the spot price.
So, there are knock-out and knock-in options, example:
Knock out - if price gets to 1.20, option worthless
Knock in - if price gets to 1.20, option gets activated
My question is, how does that impact spot price? For knock-outs, option writers want to push price to 1.20, but the buyer of the option wants to defend the level.
But what happens if price gets to 1.20 - I mean what is the transaction in the spot market? Let's assume the volume of the option is 1 billion - does that mean when price hits 1.20 and the option is worthless, it triggers a 1 billion SELL trade?
Also, kind of difficult to read on IFR whether the barrier in question is knock in or out.
Thanks!
I searched on Google, but was shocked how little info I could get from there.
I read in a forum that large players in the market look at Barrier Options that are near the spot price.
So, there are knock-out and knock-in options, example:
Knock out - if price gets to 1.20, option worthless
Knock in - if price gets to 1.20, option gets activated
My question is, how does that impact spot price? For knock-outs, option writers want to push price to 1.20, but the buyer of the option wants to defend the level.
But what happens if price gets to 1.20 - I mean what is the transaction in the spot market? Let's assume the volume of the option is 1 billion - does that mean when price hits 1.20 and the option is worthless, it triggers a 1 billion SELL trade?
Also, kind of difficult to read on IFR whether the barrier in question is knock in or out.
Thanks!