Compound option

Compound option or split-fee option[1][2] is option on an option. The exercise payoff of a compound option involves the value of another option. A compound option then has two expiration dates and two strike prices. Usually, compounded options are used for currency or fixed income markets where insecurity exists regarding the option’s risk protection. Another common business application that compound options are used for—to hedge bids for business projects that may or may not be accepted.

Variants

Compound options provide their owners with the right to buy or sell another option. These options create positions with greater leverage than do traditional options. There are four basic types of compound options:[3]

  • Call on Call (CoC)
  • Call on Put (CoP) or caput option
  • Put on Put (PoP)
  • Put on Call (PoC)

References

External links


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Look at other dictionaries:

  • Compound option — Option on an option. The New York Times Financial Glossary * * *    An option on an option. It grants the holder the right to buy or sell an option at a set price on a predetermined date. If the first option is exercised, the underlying option… …   Financial and business terms

  • compound option — An option on an option. Examples are captions and floortions. American Banker Glossary option on an option. Bloomberg Financial Dictionary * * *    An option on an option. It grants the holder the right to buy or sell an option at a set price on… …   Financial and business terms

  • Compound Option — An option for which the underlying is another option. Therefore, there are two strike prices and two exercise dates. These are the four types of compound options: Call on a call Put on a put Call on a put Put on a call This type of option usually …   Investment dictionary

  • Option (finance) — Option Une option est un produit dérivé, en finance de marché, qui donne le droit, lorsqu on l achète, ou l obligation, lorsqu on la vend, d acheter ou de vendre un actif financier à un prix fixé à l avance (strike) pendant un temps donné ou à… …   Wikipédia en Français

  • Option américaine — Option Une option est un produit dérivé, en finance de marché, qui donne le droit, lorsqu on l achète, ou l obligation, lorsqu on la vend, d acheter ou de vendre un actif financier à un prix fixé à l avance (strike) pendant un temps donné ou à… …   Wikipédia en Français

  • Option européenne — Option Une option est un produit dérivé, en finance de marché, qui donne le droit, lorsqu on l achète, ou l obligation, lorsqu on la vend, d acheter ou de vendre un actif financier à un prix fixé à l avance (strike) pendant un temps donné ou à… …   Wikipédia en Français

  • Option réelle — Option Une option est un produit dérivé, en finance de marché, qui donne le droit, lorsqu on l achète, ou l obligation, lorsqu on la vend, d acheter ou de vendre un actif financier à un prix fixé à l avance (strike) pendant un temps donné ou à… …   Wikipédia en Français

  • Option style — In finance, the style or family of an option is a general term denoting the class into which the option falls, usually defined by the dates on which the option may be exercised. The vast majority of options are either European or American (style) …   Wikipedia

  • Option (finance) — Stock option redirects here. For the employee incentive, see Employee stock option. Financial markets Public market Exchange Securities Bond market Fixed income …   Wikipedia

  • Option — Produits dérivés financiers Produits fermes Forwards (Contrat de gré à gré) Futures (Contrat à terme) Swaps (Échange financier) Produits optionnels Options et Warrants Credit default swap (couvertures de défaillance) …   Wikipédia en Français


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