Abandonment Option

The term abandonment option refers to a clause in a contract which gives one or more of the parties involved the option of withdrawing from the contract without fulfilling their contractual obligations.

Abandonment options provide a safeguard for the different parties to a contract because it allows them to withdraw from the contract if the contract becomes unfavorable for them.

In options trading, for example, the option contract includes an abandonment clause which frees the option holder from the obligation to buy the underlying assets at the strike price when the option matures, if they choose not to.

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