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What are different types of exotic options?

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Exotic options are non-standardized options with complicated features in the underlying asset and calculation & payment of payoffs. The exotic options are different from Call and Put options and are traded in OTC markets. Some popular exotic options are-

  • Barrier Options – Option whose payoff depends on the price of the underlying crossing a certain level during the option's lifetime.
  • Binary options: Option whose payoff depends on whether the option closes ITM or OTM on expiry.
  • Asian Options: Option whose payout is determined by deducting the average from the strike price.
  • Compound Option: Option where the underlying is another option. It has two strike prices and expiration dates. Here, you can have 4 positions like Call on Call, Call on Put, Put on Put and Put on Call.
  • Chooser option: Option which allows a trader to choose whether the purchased option is a call or a put after a specified time.
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