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YouTube T3-41 - Exotic options: compound option (e.g., call on a call)

Nicole Seaman

Director of FRM Operations
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A compound option is an option to buy or sell a call or a put. A call on a call is the right to buy a call at T1 for K1 (and if exercised, the purchased call has a strike of K2 and expires at T2). A call on a put is the right to buy a put at T1 for K1 (and if exercised, the purchased put has a strike of K2 and expires at T2). A put on a put is the right to sell a put for K1 at T1 (and if written, the put has a strike of K2 and expires at T2). A put on a call is the right to sell a call for K1 at T1 (and if written, the call has a strike of K2 and expires at T2).



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