Rainbow Option

What does it mean?
A single option that is linked to two or more underlying securities.  In order for the option to payoff all of the underlying securities must move in the intended direction.

In Other Words...
The underlying securities can have different characteristics, such as expiry date and strike price but must all move in the way the option holder has bet they will. 

To illustrate this style of option, consider this analogy.  You are at a baseball tournament with three fields backing one another, one game is half way through, one is just starting and one starts in an hour, if you pick all three winners of the games you profit, if any one team you picked loses, you receive nothing. 

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Related Terms
Exotic Option | Expiration Date | Option | Vanilla Option

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