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Forward Start Option

What does Forward Start Option mean?

It is a type of option which starts at a specified future date with an expiration date which is even further in the future. It means advance purchase of a call or put option that becomes active at a future date. The premium of the forward option is paid in advance even though the term of the option starts in the future.

Futures Knowledge Explains Forward Start Option

For example, an employee stock option is generally a type of forward start option where the company gives the right to an employee to buy stock at a specified future date after a certain amount of time. It is a type of retention strategy. Like, company ABC may tell its employee to work for 1 more year after which he will get stock options at a future date, say 3 months.

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