> For the complete documentation index, see [llms.txt](https://eako-capital.gitbook.io/eako-user-guide/llms.txt). Markdown versions of documentation pages are available by appending `.md` to page URLs; this page is available as [Markdown](https://eako-capital.gitbook.io/eako-user-guide/barrier-options/knock-out.md).

# Knock-Out

### Definition

A Knock-Out is a vanilla option that ceases to exist (is "knocked-out") if the underlying spot breaches a predetermined barrier before maturity.

### Barrier

For a regular Knock-Out, the barrier is OTM, i.e., below the strike for a call and above the strike for a Put.  For a reverse Knock-Out (or "kick-out"), the barrier is ITM, i.e., above the strike for a call and below the strike for a Put.

### Premium

The Knock-Out premium is lower than that of a regular Vanilla option.  The closer the barrier from spot, the lower the premium, as there is higher probability that the option will be knocked out before expiry.

### Payoff

If the barrier is not knocked-out, then the profile of a Knock-Out option is the same as a regular Vanilla option.  If the option is knocked-out, the customer is no longer hedged against adverse market movements.


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