what is a knock in option 
a knock in option is a latent option contract that begins to function as a normal option knocks in only once a certain price level is reached before expiration knock ins are a type of barrier option that are classified as either a down and in or an up and in a barrier option is a type of contract in which the payoff depends on the underlying security s price and whether it hits a certain price within a specified period understanding knock in optionsknock in options are one of the two main types of barrier options with the other type being knock out options a knock in option is a type of contract that is not an option until a certain price is met so if the price is never reached it is as if the contract never existed however if the underlying asset reaches a specified barrier the knock in option comes into existence the difference between a knock in and knock out option is that a knock in option comes into existence only when the underlying security reaches a barrier while a knock out option ceases to exist when the underlying security reaches a barrier barrier options typically have cheaper premiums than traditional vanilla options primarily because the barrier increases the chances of the option expiring worthless a trader may choose the cheaper relative to a comparable vanilla barrier option if they feel it is quite likely the underlying will hit the barrier down and in knock in optionassume an investor purchases a down and in put option with a barrier price of 90 and a strike price of 100 the underlying security is trading at 110 and the option expires in three months if the price of the underlying security reaches 90 the option comes into existence and becomes a vanilla option with a strike price of 100 thereafter the holder of the option has the right to sell the underlying asset at the strike price of 100 even though it is trading below 90 it is this right that gives the option value the put option remains active until the expiration date even if the underlying security rebounds back above 90 however if the underlying asset does not fall below the barrier price during the life of the contract the down and in option expires worthless just because the barrier is reached does not assure a profit on the trade since the underlying would need to stay below 100 after triggering the barrier in order for the option to have value up and in knock in optioncontrary to a down and in option an up and in option comes into existence only if the underlying reaches a barrier price that is above the current underlying s price for example assume a trader purchases a one month up and in call option on an underlying asset when it is trading at 40 per share the up and in call option contract has a strike price of 50 and a barrier of 55 if the underlying asset does not reach 55 during the life of the option contract it expires worthless however if the underlying asset rises to 55 or above the call option would come into existence and the trader would be in the money 