What Are Exotic Options? 

In todays video we will learn all about Exotic Options.
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What Are Exotic Options?
In finance, an exotic option is an option which has features making it more complex than commonly traded vanilla options. Like the more general exotic derivatives they may have several triggers relating to determination of payoff. An exotic option may also include non-standard underlying instrument, developed for a particular client or for a particular market. Exotic options are more complex than options that trade on an exchange, and are generally traded over the counter (OTC).
Look-Back Options
Look-back options give their owners the right to buy or sell the underlying security at the most attractive price that it actually trades in the cash market over a specified period of time. This time period is typically - but not always - the same time frame as the option's life.
Binary Options
Binary options (also known as digitals) have a fixed payoff if the option ends up being in the money at expiration, regardless of the extent to which it is in the money.
Bermudan Options
Bermudan options are a hybrid between American and European options. Unlike American options (which can be exercised at any time during a specified period) and European options (which can be exercised only at maturity), Bermuda options may be exercised prior to maturity, but only on certain dates.
Barrier Options
Barrier options are options that are either activated or deactivated when the price of the underlying security passes through some predefined value (the barrier). Barrier options have eight different varieties:
Up and in call - a call option that's activated if the price of the underlying rises above a certain price level.
Up and out call - a call option that's deactivated if the price of the underlying rises above a certain price level.
Down and in call - a call option that's activated if the price of the underlying falls below a certain price level.
Down and out call - a call option that's deactivated if the price of the underlying falls below a certain price level.
Up and in put - a put option that's activated if the price of the underlying rises above a certain price level.
Up and out put - a put option that's deactivated if the price of the underlying rises above a certain price level.
Down and in put - a put option that's activated if the price of the underlying falls below a certain price level.
Down and out put - a put option that's deactivated if the price of the underlying falls below a certain price level.
Restrike Options
The strike price of these changes if the price of the underlying passes through a barrier price. They're typically written so that the strike price of calls is lowered and the strike price of puts is raised.
Asian Options
Asian options are very similar to look-backs, with the exception that while look-backs are based on the highest or lowest price over a period of time, Asians are based on an average price. These options can be divided into two categories: Asian strike options and Asian expiration options.
Compound Options
Compound options provide their owners with the right to buy or sell another option. These options create positions with greater leverage than traditional options. There are four basic types of compound options:
Ca-call - the right to buy a call.
Pu-call - the right to sell a call.
Ca-put - the right to buy a put.
Pu-put - the right to sell a put.
Perpetual Zero Options
As the name implies, perpetual zero options never expire, and they have a strike price equal to zero. The perpetual right to buy an underlying security at a price of zero has the same value as the underlying security itself (unless the underlying pays dividends or interest
Delay Options
Delay options are options in which the strike price is not set when the option is created. Instead, the strike price is set to equal the underlying's current market price at some predefined time in the future. They're often used to hedge certain types of executive options.
Chooser Options
With a chooser option, the long is provided the opportunity to decide whether the option is to be a call or a put at some time after the option is actually purchased. The 'choose date' can be any date after the option is created, up to and including its expiration date.
Contingent Premium Options
These are instruments in which the long does not initially pay for the option. Instead, the long pays only if the option ends up being in the money. Any option, whether exotic or not, can become a contingent premium option by the mutual consent of the buyer and seller.