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A compound option is a type of option contract that gives the holder the right, but not the obligation, to buy or sell another option at a predetermined price. In essence, it is an option on an option. Compound options are used in various financial markets for risk exposure management and for speculation, including equities, currencies, commodities, and interest rates.
There are two types of compound options: a call-on-call option and a put-on-put option. A call-on-call option gives traders the right to buy another call option, while a put-on-put option gives traders the right to sell another put option.
Traders may use compound options to hedge against market uncertainty, as they offer more flexibility and customisability than simple options in managing risk exposure. Experienced traders who want to create complex strategies can also use compound options to take advantage of specific market conditions.
Compound options are not typically used by retail traders due to their complexity. However, they are popular with professional and institutional investors and hedge funds. Compound options are also used in corporate finance, particularly in the pricing of convertible bonds and other hybrid securities.
ADSS offers a range of global markets for traders, with opportunities in indices, commodities, forex, equities and more. We also feature tutorials, how-to guides, and weekly webinars to help you navigate the financial markets and find better trading opportunities. You can start trading and investing online by opening a live trading or demo trading account.
Investing in CFDs involves a high degree of risk that you will lose your money due to the use of leverage, particularly in fast moving markets, where a relatively small movement in the price can lead to a proportionately larger movement in the value of your investment. This can result in loses that exceed the funds in your account. You should consider whether you understand how CFDs work and you should seek independent advice if necessary.
ADS Securities LLC (“ADSS”) is authorised and regulated by the Securities and Commodities Authority (“SCA”) in the United Arab Emirates as a trading broker for Over the Counter (“OTC”) Derivatives contracts and foreign exchange spot markets. ADSS is a limited liability company incorporated under United Arab Emirates law. The company is registered with the Department of Economic Development of Abu Dhabi (No. 1190047) and has its principal place of business at 8th Floor, CI Tower, Corniche Road, P.O. Box 93894, Abu Dhabi, United Arab Emirates.
The information presented is not directed at residents of any particular country outside the United Arab Emirates and is not intended for distribution to, or use by, any person in any country where the distribution or use is contrary to local law or regulation.
ADSS is an execution only service provider and does not provide advice. ADSS may publish general market commentary from time to time. Where it does, the material published does not constitute advice, or a solicitation, or a recommendation to a transaction in any financial instrument. ADSS accepts no responsibility for any use of the content presented and any consequences of that use. No representation or warranty is given as to the completeness of this information. Anyone acting on the information provided does so at their own risk.
