A compound option is
A)An option to compound the option's payoffs at a prespecified rate.
B)An option based on compounding the price of the underlying at a prespecified rate.
C)An option on an underlying option.
D)An option on a compound-interest bearing investment.

Question

Quizplus · Accepted Answer

A compound option is an option on an underlying option. It gives the holder the right, but not the obligation, to buy or sell another option at a pre-specified strike price and expiration date. The underlying option may be a call option or a put option, and the holder of the compound option can choose to exercise or not exercise the underlying option.

A Compound Option Is