Low Exercise Price Option (LEPO)

A low exercise price option (LEPO) is a type of option that has a lower exercise price than the current market price of the underlying security. This means that the option is more likely to be exercised, as the holder can make a profit by buying the underlying security at the lower exercise price and then selling it at the higher market price.

LEPOs are often used by investors who are bullish on the underlying security and believe that its price will increase in the future. By purchasing a LEPO, the investor can lock in a lower price for the security, which can protect them from losses if the price does not rise as much as they had hoped.

LEPOs can also be used by investors to hedge their positions. For example, an investor who owns a stock may purchase a LEPO on that stock to protect themselves from a decline in the stock's price. If the stock price falls, the investor can exercise the LEPO and buy the stock at the lower exercise price, which will offset the loss on their stock position.

LEPOs are typically more expensive than other types of options, as they have a higher chance of being exercised. However, they can also be more profitable, as the investor can make a larger profit if the underlying security's price rises significantly.

LEPOs are a complex financial instrument and should only be used by investors who understand the risks involved.