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Rainbow Option
       
 
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Rainbow Option

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Rainbow Option
A single Option that is linked to two or more Underlying securities.
    
In order for the Option to payoff all of the Underlying securities must move in the intended direction.

The Underlying securities can have different characteristics, such as Expiry Date and Strike Price, but all must move in the way the Option Holder has bet they Will.
    
Here's a sports-betting analogy that demonstrates a rainbow Option: suppose you're at a baseball tournament with three fields backing one another. One game is halfway through, a second is just starting and a third starts in an hour. A type of bet that's analogous to a rainbow Option is one that earns you a profit if you pick all three winners, but gets you  nothing if any one team you pick is a loser.
    
Option is a financial Derivative that represents a contract sold by one party (Option Writer) to another party (Option Holder).
Posted by  Privatebanking.com
 
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