What characterizes a knock-out option?

A knock-out option is defined by its structure in relation to certain barriers or thresholds in the market. Specifically, it is a type of option that becomes invalid or "ceases to exist" if the underlying asset's price touches a predetermined barrier level at any time during the life of the option. This characteristic introduces an additional layer of risk, as the option holder must be aware not only of the movements of the underlying asset but also of the potential for the option to be knocked out before maturity.

For instance, if a call knock-out option has a barrier set at a certain price point, and the market price of the underlying asset reaches that barrier, the option would become worthless, and the holder would lose the right to exercise it, regardless of the future performance of the underlying asset.

The other options do not accurately describe the nature of a knock-out option. While some options can indeed be created at any market price or remain valid regardless of market conditions, these features do not specifically relate to the knock-out criteria. Similarly, while options may be executable at maturity, this is not a defining feature of knock-out options, as their validity is contingent on the price reaching a certain level rather than just their timing of exercise.