Posted in Finance, Accounting and Economics Terms, Total Reads: 348
Definition: Cash-or-Nothing Call
Cash-or-nothing call is a call option which has a value which is fixed earlier for payoff. The payment is done if the underlying asset’s price reaches or goes beyond the strike price of the derivative. The payout in case of cash or nothing is either a sum which is prefixed earlier or zero. Since it is either zero or a decided value or cash, it is referred as cash or nothing call.
The American options are exercised when the price of the asset reaches strike price and the European options are exercised when the price of the asset exceeds the strike price. The payoff price is generally taken to be equal to the strike price.
The Cash-or-Nothing call is called so because the investor either receives a fixed amount as payoff or nothing at all. These are considered as digital options as the payment is either made or not made.