What is a characteristic of a down-and-out call option?

A down-and-out call option is characterized by the fact that it becomes worthless or ceases to exist if the price of the underlying asset falls below a predetermined barrier. This barrier is set below the current market price and is a critical condition for the option to remain valid. If the barrier is breached, the option is “knocked out” and is no longer exercisable, which means it effectively ceases to have any value.

The nature of this option is specifically tied to the performance of the underlying asset relative to the barrier level, which is why the first option accurately describes its behavior. The other answer choices do not accurately capture the essence of a down-and-out call option. For instance, the idea that the option comes into existence only upon reaching a barrier is more representative of an up-and-in option rather than a down-and-out call. The standard characteristics referenced in another choice pertain to regular call options, which do not include barrier conditions. Lastly, the notion that it pays out regardless of performance is fundamentally inaccurate, as the option's value is contingent upon the underlying asset's price relative to the set barrier.