Lasso - To play the stability and benefit from the the passing of time, with less reactivity compared to a Tunnel.
Win 100 € if the closing price of the underlying stands between the 2 barriers at expiry. Otherwise the Lasso is deactivated and its value is null.
Example
The Nikket indice quotes 11000 points. You anticipate that the indice closes around 11300 points within 2 weeks. You buy 58 ? a Lasso option on the Nikkei, with barriers [10800 - 11500], with an expiry in 2 weeks. If the Nikkei closes between those 2 prices on the expiry date, you touch 100 ?. Please note that during the buy period, you may also at any time resiliate your contract.
1. Relevant scenario
2. Trading with technical analysis
The Lasso allows to play the price stability. As long as the underlying price stands between 2 barriers, the Lasso appreciates : we say that its "time value" increases. The increase of the time value accelerates as the maturity approaches. The Lasso is a good alternative to the Tunnel as the deactivation risk is limited to the actual maturity date. Besides the increase of the time value; we may obtain a good leverage effect on the underlying price by playing the realignment, from outside of the Lasso to the middle. Please note, that a for a given maturity we may propose Lasso with variable width : the large the Lasso the less risky it is (since it's more expensive). As for FinsihHi/FinishLo Lasso's behaviour varies depending on wether the underlying price stands inside the barrier ("In the money" Lasso) or outside of the barrier("Out of the money" lasso).
Lasso Position
Underlying realignment
Passing of time
Volatility Increase
In the money
Out of the money
In the money : the underlying price is greater than the barrier.
Out of the money : the underlying price is lower than the barrier
The technical analysis is the study of the past evolution of the underlying mainly based on price charts in the prospect of predicting the trend (increase, decrease or consolidation), ampitude and time : support and resistance levels, patterns. The Lasso is adapted for benefiting from a consolidation phasis, notably by picking barriers located within the support-resistance bandwidth.