Use

A compound option is an option on a currency option .

This is an option on an option, which means that there is also an underlying transaction (for example, a spot exchange transaction) for the related underlying transaction ( Currency Option ).

The advantage of a compound option lies in the fact that the option premium is lower than the premium for a currency option, although this does mean paying a second premium for the underlying transaction when you exercise the compound option. If, however, you do not exercise the compound option, you have paid a lower premium for a possible hedge than the one you would have paid had you purchased the currency option immediately.

Prerequisites

When you create the compound option product type, you have to maintain the standard currency option product type as the underlying (see the section on defining product types in the Implementation Guide).