AC-DC Option

AAA

DEFINITION of 'AC-DC Option'

A derivative that gives an investor the right - but not the obligation - to buy (call) or sell (put) a security at a certain price (strike), and in which the investor makes the buy or sell decision at a specific time after the option is in force, rather than at the time of purchase. The AC-DC option is basically an option, which on a future date can become a call or put option at the buyer's discretion.


Also called a "chooser option" or "hermaphrodite option".

INVESTOPEDIA EXPLAINS 'AC-DC Option'

The value of an AC-DC option is based on a complex formula that takes all of these variables into account. An AC-DC option is a type of exotic option, meaning it has more complicated terms than traditional, plain-vanilla options.

RELATED TERMS
  1. Put

    An option contract giving the owner the right, but not the obligation, ...
  2. Derivative

    A security whose price is dependent upon or derived from one ...
  3. Call

    1. The period of time between the opening and closing of some ...
  4. Chooser Option

    An option contract that allows the holder to decide whether it ...
  5. Option

    A financial derivative that represents a contract sold by one ...
  6. Multibank Holding Company

    A company that owns or controls two or more banks. Mutlibank ...
Related Articles
  1. Introduction To Put Writing
    Options & Futures

    Introduction To Put Writing

  2. Getting Acquainted With Options Trading
    Options & Futures

    Getting Acquainted With Options Trading

  3. Stock Options: What's Price Got To Do ...
    Options & Futures

    Stock Options: What's Price Got To Do ...

  4. Going Long On Calls
    Options & Futures

    Going Long On Calls

comments powered by Disqus
Hot Definitions
  1. 80-10-10 Mortgage

    A mortgage transaction in which a first and second mortgage are simultaneously originated. The first position lien has an ...
  2. Passive ETF

    One of two types of exchange-traded funds (ETFs) available for investors. Passive ETFs are index funds that track a specific ...
  3. Walras' Law

    An economics law that suggests that the existence of excess supply in one market must be matched by excess demand in another ...
  4. Market Segmentation

    A marketing term referring to the aggregating of prospective buyers into groups (segments) that have common needs and will ...
  5. Effective Annual Interest Rate

    An investment's annual rate of interest when compounding occurs more often than once a year. Calculated as the following: ...
  6. Debit Spread

    Two options with different market prices that an investor trades on the same underlying security. The higher priced option ...
Trading Center