Barrier Option Definition

An option with a payoff that depends on whether the underlying investment trades through a barrier price. If the option doesn’t reach a certain price level, it is worthless. There are many types of barrier options. Three types are: down-and-out options, up-and-in options, and early-exercise trigger CAPS options. Barrier options are one type of trading strategy that an options trader will use to create profits. Also called knock-in or knockout options.