LookbackPut

A LookbackPut is a type of exotic option whose payoff depends on the maximum underlying asset price observed during the option's life. Specifically, a standard lookback put option pays out at expiration if the asset's price at expiration is below a certain price, which is determined by the maximum price reached during the option's term. The strike price of a lookback put is not fixed at the outset but is instead set at the highest price of the underlying asset that occurred at any point between the option's initiation and its expiration date. This feature makes the lookback put particularly attractive to investors who anticipate a significant decline in an asset's price after a period of potential price appreciation. The option's value is derived from the difference between this highest observed price and the asset's price at expiration, if this difference is positive. Because the strike price is determined by past price movements, lookback puts are generally more expensive than standard vanilla put options with a fixed strike price. They offer protection against a downturn, but the level of protection is influenced by the asset's peak performance during the option's life. This characteristic makes them a tool for hedging or speculating on falling prices after a period of strength.