Cliquet Option

A cliquet option, also known as a ratchet option, is a series of sequential forward-starting options where each option's strike is automatically reset to the prevailing market price at the start of each new period. This means the investor locks in gains periodically rather than waiting for a single end-of-term payoff. For example, a one-year cliquet on Nifty 50 with quarterly resets would lock in positive quarterly returns separately, protecting gains made in each quarter independently of subsequent market movements. Cliquet options are a core component of many capital-protected structured products offered to retail investors. They are priced using forward volatility assumptions and are sensitive to the volatility term structure across the reset dates.