In a compound option, the premium one pays on the first option contract. A compound option is an option on another option. For example, one may buy a call on a put, which is an option to buy an option to sell some underlying asset. An investor buying a compound option pays a premium on the first option but does not pay a premium on the second option unless the first option is exercised (if it is exercised). This first premium is the front fee. See also: Back Fee.
The payment made to acquire a compound option. A second payment must be made in the event the compound option is exercised. Compare back fee.