Caput

AAA

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".

INVESTOPEDIA EXPLAINS '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.

RELATED TERMS
  1. Compound Option

    An option for which the underlying is another option. Therefore, ...
  2. Over-The-Counter - OTC

    A security traded in some context other than on a formal exchange ...
  3. Vanilla Option

    A financial instrument that gives the holder the right, but not ...
  4. Call Option

    An agreement that gives an investor the right (but not the obligation) ...
  5. Exotic Option

    An option that differs from common American or European options ...
  6. Strike Width

    The difference between the strike price of an option and the ...
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. What risks should I consider taking a short put position?

    The risks to consider before taking a short put position are the odds of sustained weakness in the asset price and a spike ... Read Full Answer >>
  4. What happens if a software glitch fails to execute the strike price I set?

    If you've ever suffered the frustrating experience of having an order not filled or had a strike price fail to execute because ... Read Full Answer >>
  5. In what market situations might a short put be a profitable trade?

    Short puts would be a profitable trade in low-volatility bull markets or range-bound markets. Selling puts is a strategy ... Read Full Answer >>
  6. What is the relationship between implied volatility and the volatility skew?

    The volatility skew refers to the shape of implied volatilities for options graphed across the range of strike prices for ... Read Full Answer >>
Related Articles
  1. Options & Futures

    Options Basics Tutorial

    Discover the world of options, from primary concepts to how options work and why you might use them.
  2. Options & Futures

    20 Tools For Building Up Your Portfolio

    The only real difference between you and Warren Buffett is a few well-chosen stocks, and the billion-dollar fortune is the result.
  3. Investing Basics

    What is a Greenshoe Option?

    A greenshoe option is a provision in an underwriting agreement that allows the underwriter to buy up to 15% of the shares in an IPO at the offer price.
  4. Investing Basics

    What Does a Clearing House Do?

    A clearing house is a third-party agency or separate entity that acts as a go-between for buyers and sellers in financial markets.
  5. Options & Futures

    How The New NYSE Binary Options Work

    The New York Stock Exchange has launched its own version of binary options called Binary Return Derivatives Options or ByRDs.
  6. Mutual Funds & ETFs

    4 Ways You Can Invest In Gold Without Holding It

    Owning gold can be a store of value and a hedge against unexpected inflation. Holding physical gold, however, can be cumbersome and costly. Fortunately, there are several ways to own gold without ...
  7. Active Trading Fundamentals

    How To Short Amazon Stock

    With the stock reaching all-time highs and the company gambling on several new business lines, many investors may feel it's a good time to short sell Amazon.
  8. Investing Basics

    What is Meant by Implied Volatility?

    The estimated volatility of a security's price.
  9. Professionals

    Structured Notes: What You Need to Know

    Structured notes are complex, high risk and might not be suitable for individual investors. Here's why.
  10. Options & Futures

    How Are Stock Options Taxed & Reported?

    That depends on the type of stock option you have. A rundown of the tax treatment for statutory and nonstatutory, or non-qualified, options.

You May Also Like

Hot Definitions
  1. National Currency

    The currency or legal tender issued by a nation's central bank or monetary authority. The national currency of a nation is ...
  2. Treasury Yield

    The return on investment, expressed as a percentage, on the debt obligations of the U.S. government. Treasuries are considered ...
  3. Bund

    A bond issued by Germany's federal government, or the German word for "bond." Bunds are the German equivalent of U.S. Treasury ...
  4. European Central Bank - ECB

    The central bank responsible for the monetary system of the European Union (EU) and the euro currency. The bank was formed ...
  5. Quantitative Easing

    An unconventional monetary policy in which a central bank purchases private sector financial assets in order to lower interest ...
  6. Current Account Deficit

    A measurement of a country’s trade in which the value of goods and services it imports exceeds the value of goods and services ...
Trading Center
×

You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!