Compound options

[italkcash]

Some people have been asking what compound options are and how they are used (financially) in order to make some gain.

There are four different type of compound options, they are:

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

A compound option is an option for which the underlying is another option. They are also known as split fee option and a compound option then has two expiration dates and two strike prices.


The pricing of many other derivative instruments can be modeled as compound options. By visualizing the underlying stock as an option on the firm value, an option on stock of a levered firm that expires earlier than the maturity date of the debt issued by the firm can be regarded as a compound option on the firm value.

[JamesYates]

One 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:
1. Put on a put
2. Call on a call
3. Put on a call
4. Call on a put.
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