A series of option contracts consisting of at least one call and one put with the same underlying asset. The combination option is written as a single unit but each of the component contracts may be resold on the secondary market separately. Each of the contracts has different strike prices and/or different expiration dates. Combination options exist in order to hedge one's investments. An investor may exercise either the call or the put, depending on the underlying price trends over the life of the contract, and still make a profit on the transaction. See also: Cliquet, Straddle, Strangle.
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An option composed of one or more calls and one or more puts. While the original combination is sold as a single unit, each part may be sold or exercised individually. Examples of combination options are spreads, straddles, straps, and strips.
Wall Street Words: An A to Z Guide to Investment Terms for Today's Investor by David L. Scott. Copyright © 2003 by Houghton Mifflin Company. Published by Houghton Mifflin Company. All rights reserved. All rights reserved.