Warrant with Knock-Out — Call
A call that is already in the money and dies if the underlying touches the knock-out level.
Payoff at maturity
Move the parameters; the product formula and its building blocks are recomputed from the same engine that is tested against the workbook.
The knock-out is path dependent. The chart shows the value at expiry given whether the knock-out level was touched.
- Knock-out level never touched
Value 10 %
Per 10'000 of nominal
| Underlying at maturity | Level | Value | Amount | Gain / loss |
|---|---|---|---|---|
| −30 % | 70 % | 0 % | 0 | −10'000 |
| unchanged | 100 % | 10 % | 1'000 | −9'000 |
| +30 % | 130 % | 40 % | 4'000 | −6'000 |
For leverage products the nominal stands for the initial underlying level; the amount is the value of a position that controlled 10,000 of underlying at the start. Premium, financing and time value are not included. Scenario: Knock-out level never touched.
Data table and formulas
Warrant with Knock-Out - Call (2200), scenario "Knock-out level never touched": value per unit at maturity for an underlying at 0 % → 0 %; 90 % → 0 %; 100 % → 10 %; 200 % → 110 % of its initial level.
| Series | Formula | 0 % | 25 % | 50 % | 75 % | 100 % | 125 % | 150 % | 175 % | 200 % |
|---|---|---|---|---|---|---|---|---|---|---|
| Down and Out Long Call - ITM | if S ≥ knock-out level: 1 × max(S − strike, 0); otherwise 0 | 0 | 0 | 0 | 0 | 10 | 35 | 60 | 85 | 110 |
| Rebate at Knock-Out | if S < knock-out level: rebate; otherwise 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 |
| Product | if S ≥ knock-out level: max(S − strike, 0); otherwise rebate | 0 | 0 | 0 | 0 | 10 | 35 | 60 | 85 | 110 |
Largest difference between the sum of the blocks and the product formula over the grid: 0.0e+0.
How it is built
Each block drawn on its own, then added. The last chart is the sum, and it is identical to the product line above.
- Down and Out Long Call - ITMif S ≥ knock-out level: 1 × max(S − strike, 0); otherwise 0
- Rebate at Knock-Outif S < knock-out level: rebate; otherwise 0
- Product: knock-out level never touchedif S ≥ knock-out level: max(S − strike, 0); otherwise rebate
Largest gap between the sum of the blocks and the product formula on this grid: 0.0e+0. The same identity is tested for every product and scenario in the site's test suite.
Construction, as listed in the workbook
- Down and Out Long Call - ITM (strike = Knock-Out Level)
- Rebate at Knock-Out (One-Touch Digital) - usually zero
In plain English
A down-and-out call with its strike at or below the knock-out level, so the warrant starts in the money. Its value is close to the intrinsic value, underlying minus strike, with almost no time value and little sensitivity to volatility. That is what makes knock-outs attractive to traders who want pure leverage.
If the underlying touches the knock-out level, the warrant expires immediately. In the classic version the level equals the strike and nothing is paid; stop-loss versions place the level above the strike and may pay a residual, modelled here as a rebate.
Chances and risks
Chances
- Leverage without paying for time value.
- Price moves almost one for one with the underlying.
Risks
- A single touch of the knock-out level ends the product, usually with a total loss.
- Intraday moves count.
- Issuer credit risk.
Who it fits
- Active traders with tight risk control.
Who it does not fit
- Buy-and-hold investors.
Nearby on the map
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