<p>Low Exercise Price Option (LEPO) is a type of derivative contract that gives the holder the right, but not the obligation, to buy an underlying asset at a predetermined price, known as the exercise price, which is lower than the current market price.</p>

<h2>How It Works</h2>
<p>LEPOs are typically used by investors who expect the price of the underlying asset to rise. Here's how they work:</p>
<ul>
  <li>The option buyer pays a premium to the option seller.</li>
  <li>If the price of the underlying asset rises above the exercise price, the option holder can buy the asset at the lower exercise price, then sell it at the higher market price, profiting from the difference.</li>
  <li>If the price of the underlying asset does not rise, the option holder can choose not to exercise the option and only lose the premium paid.</li>
</ul>

<h2>Why It Matters</h2>
<p>LEPOs matter for several reasons:</p>
<ul>
  <li><strong>Limited Downside Risk</strong>: The worst that can happen to the option holder is losing the premium paid, which is a limited loss.</li>
  <li><strong>Potential Upside Gain</strong>: If the underlying asset's price rises, the option holder can profit significantly.</li>
  <li><strong>Hedging Strategy</strong>: LEPOs can be used to hedge against a potential decline in the price of the underlying asset, as the option holder can still buy at the lower exercise price even if the market price drops.</li>
</ul>
<p>For example, an investor who believes that a particular stock is undervalued can buy a LEPO, which gives them the right to buy the stock at a lower price. If the investor is correct and the stock price rises, they can exercise the option, buy the stock at the lower price, and sell it at the higher market price, making a profit.</p>