Back Fee


DEFINITION of 'Back Fee'

A payment made to the writer of a compound option in the case that the call option is exercised in order to obtain a put option. Back fee is a premium charged at the second portion of the option, since a compound option is an option to purchase an option.


Compound options are most commonly used by mortgage originators as a way to mitigate risk. The back fee is offered at a premium, because it provides an investor with the ability to wait before executing an option.

  1. Compound Option

    An option for which the underlying is another option. Therefore, ...
  2. Front Fee

    The option premium paid by an investor upon the initial purchase ...
  3. Option

    A financial derivative that represents a contract sold by one ...
  4. Premium

    1. The total cost of an option. 2. The difference between the ...
  5. Exercise

    To put into effect the right specified in a contract. In options ...
  6. Put-Call Parity

    A principle that defines the relationship between the price of ...
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    Mutual funds invest in not only stocks and fixed-income securities but also options and futures. There exists a separate ... Read Full Answer >>
  2. How does a forward contract differ from a call option?

    Forward contracts and call options are different financial instruments that allow two parties to purchase or sell assets ... Read Full Answer >>
  3. What are common delta hedging strategies?

    The term delta refers to the change in price of an underlying stock or exchange-traded fund (ETF) as compared to the corresponding ... Read Full Answer >>
  4. How do I determine the breakeven point for a short put?

    The breakeven point for a short put is the strike price of the option minus the premium. Selling puts is a way for traders ... Read Full Answer >>
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