compound option

Compound Option

An option on an option. Examples include a call on a call, a put on a put, a call on a put, and a put on a call.

Notes:

This type of option usually exists for currency or fixed income markets where an uncertainty exists regarding the option's risk protection capabilities.

Also known as a split-fee option.

See also: Back Fee, Call, Front Fee, Option, Put

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Compound option

Option on an option.

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compound option

An option to purchase an option. Examples include, a call on a call option or a call on a put option. A fee must be paid to buy a compound option and a second payment must be made to the owner of the option in the event the compound option is exercised. Also called split-fee option. See also back fee, front fee.