A type of option where the cost of purchasing the option is paid gradually as the strike approaches instead of when the trade is initiated. The options contract spells out how much pmium must be paid and when. A step pmium option is more expensive than a plain vanilla in-the-money option, but less expensive than a contingent pmium option. With the latter, the investor does not pay a pmium if the option expires out of the money.
A step pmium option is considered a structured option. A wide variety of options exist to meet different investment needs, and their pmiums reflect the unique risks and rewards associated with each type of option. Investors like options because they offer a cost-efficient way to invest in an underlying asset, they can reduce investment risk when used correctly, they allow the potential for higher percentage returns by using leverage and they provide the flexibility to develop numerous trading strategies.