Caput

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DEFINITION of 'Caput'

A type of exotic option that consists of a call option on a put option. Essentially, a caput gives the holder the right to purchase another option. This type of option is also known as a "compound option".

BREAKING DOWN 'Caput'

The holder of a caput option has the right to purchase a specific put option in the event that the price of the underlying asset declines. The disadvantage of a caput option is that it only trades over the counter, so it is not as easy to get into a position with caput options as with regular vanilla options.

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RELATED FAQS
  1. What do all of the letters in a stock option ticker symbol mean?

    The option ticker explains four main things about the option: the underlying stock, whether it is a call or a put option, ... Read Full Answer >>
  2. What's the difference between a regular option and an exotic option?

    Before learning about exotic options, you should have a fairly good understanding of regular options. Both types of options ... Read Full Answer >>
  3. 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 >>
  4. What are the main risks associated with trading derivatives?

    The primary risks associated with trading derivatives are market, counterparty, liquidity and interconnection risks. Derivatives ... Read Full Answer >>
  5. How can an investor profit from a fall in the utilities sector?

    The utilities sector exhibits a high degree of stability compared to the broader market. This makes it best-suited for buy-and-hold ... Read Full Answer >>
  6. What is the difference between derivatives and options?

    Options are one category of derivatives. Other types of derivatives include futures contracts, swaps and forward contracts. ... Read Full Answer >>

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