Compound Option

Posted in Finance, Accounting and Economics Terms, Total Reads: 1968

Definition: Compound Option

Usually popular in currency and fixed income markets, a compound option is an option on an underlying option contract. Therefore, there are 2 expiration dates and 2 strike prices for this option. These are of 4 types:

  • Call on a call
  • Call on a put
  • Put on a call
  • Put on a put

It also involves 2 premiums- one paid upfront and the other if the option is exercised. These are also called the split fee option.

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