What is a Compound Option?
A compound option is the opportunity to buy or sell an.
How Does a Compound Option Work?
Let’s assume John Doe buys a option to purchase an option.on an to purchase 100 of Company XYZ at $25 per share by March 31. He pays $1,000 to the seller of that call. This arrangement is called a compound option -- that is, it is an
Now let’s say John Doe wants to exercise the call on the option. Now he must pay the premium on the second option (the option to buy 100 back fee, is $3,900.of Company XYZ at $25 per share). This second premium, called the
Why Does a Compound Option Matter?
Many investors know that they don’t always have to make outright purchases or sales of securities; they can also use and calls. But few investors know about compound options, which can be very useful but carry .