Knock-In Options might be a bit confusing at first glance, but they are actually quite simple to understand. To put it simply, knock-in options are a type of option contract that begins to function as a normal option once a certain price level is reached before expiration. In other words, the contract starts paying out once the specified price threshold is surpassed by the underlying security's current price.Knock-ins are a type of option contract that become active only when a certain price level is reached before expiration. They are classified as either down-and-in or up-and-in options. The payoff from these contracts depends on the underlying security's price, and whether it hits the specified price by expiration.Knock-in options are classified as either down-and-in or up-and-in, depending on how the price of the underlying security falls before hitting a certain level. The payoff on these contracts depends on the type of barrier option that's selected: if it's classified as a down-and-in, you'll get paid if the underlying security falls below the preselected price level, while an up-and-in contract pays out only if you're right about that specific security hitting a preselected price level.Knock-ins are classified as either down-and-in or up-and-in. Down and in refers to when you get paid if the underlying stock's price falls below the specified threshold on or before expiration day; whereas, up and in refers to when you get paid if the underlying stock's price increases above the specified threshold on or before expiration day. That being said, there are usually two types of knock in contracts: barrier options and butterflies. This is because they both serve a similar purpose: limiting your potential losses while increasing your potential gains during bear markets and volatility spikes alike.
