Lookback Option

A lookback option gives the holder the right to buy or sell the underlying asset at its most favourable price observed during the option's life, rather than at a fixed strike. A lookback call allows the buyer to purchase at the lowest price recorded during the contract period, while a lookback put allows selling at the highest price recorded. This eliminates the risk of mistiming entry or exit, making lookback options particularly attractive in volatile markets. However, this feature comes at a significant cost — lookback options carry substantially higher premiums than vanilla options. They are used primarily by institutional investors in structured product strategies and are traded OTC rather than on exchanges like NSE or BSE in India.