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Reference.org
Compound option
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<p>A compound option or split-fee option is an <a href="/facts/Option_(finance)/5gJFXV3X">option</a> on an option. The exercise payoff of a compound option involves the value of another option. A compound option then has two <a href="/facts/Expiration_(options)/LHEyovoC">expiration dates</a> and two <a href="/facts/Strike_price/WzUb8XG6">strike prices</a>. Usually, compounded options are used for currency or <a href="/facts/Fixed_income/om1XWfKb">fixed income</a> markets where insecurity exists regarding the option's risk protection. Another common business application that compound options are used for is to hedge bids for business projects that may or may not be accepted. For related discussion on multi-stage real options – and graphical representation – see <a href="/facts/Datar%E2%80%93Mathews_method_for_real_option_valuation/e5vmnf8t">Datar–Mathews method for real option valuation</a>. </p>