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- Volatility Derivatives 1
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- Applications of Cliquet Options
Applications of Cliquet Options
The period strike setting feature of a cliquet enables an investor to implement a strategy consistent with rolling options positions but without exposure to volatility movements.
For example: an investor could buy a cliquet to implement a rolling 3m put strategy and be immunized against the future increase in options premiums that would accompany increases in volatility throughout the life of the strategy. Hence, a cliquet provides cost certainty, whereas the rolling put strategy does not.
Numerous variations exist and can be tailored to give very different risk-reward profiles. The customizability of cliquet options likely means we will continue to see product innovation in this area in the future.
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