What is Lapse?

Lapse
The termination of a right or a privilege on a policy due to the passage of time or due to inactivity is denoted by the term lapse. A party that fails to fulfill the set conditions on an agreement or a contract usually looses the right on the policy and this is when the policy lapses.

A policy might also lapse when apart from not fulfilling the set condition, the party also breaches the terms of the agreement. To exemplify, in case of an insurance policy, it lapses if the insured does not pay premium. An option expires or lapses when it reaches the maturity date. Thus the option holder will loose the right to buy/sell the asset underlying the option contract.

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October 2, 2008 · Filed Under Options Trading

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