Lookback Straddle (An Example)

Lookback Straddle

Let us consider a lookback call option. During the lookback period the highest price of underlying asset is S_max, and the price at present is S_t , then the payof of this lookback call option is

Payoff_call = S_max - S_t

Similarly, for the lookback put option, the payof depends on the minimum price in the lookback period:

Payoff_put = S_min - S_t

Since the lookback straddle is the kind of construction of the lookback call and lookback put options, this strategy is benefited by taking the difference of the highest and the lowest prices of underlying assets:

Payoff_{lookback straddle} = S_max - S_min