Chameleon Option

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DEFINITION of 'Chameleon Option'

An option that has the ability to change its structure should predetermined terms of the contract be met, such as a specified increase or decrease in the spot price. A chameleon option gives an investor greater flexibility in a single contract instead of requiring two or more contracts to achieve a similar result. They can be utilized for more complex ways to meet varying investment needs and varying expectations about the underlying's price movement.

BREAKING DOWN 'Chameleon Option'

An example of a chameleon option would be when a put option (a contract giving the owner the right, but not the obligation to sell a specified amount of an underlying security) automatically changes into an identical call option (similar to a put except rather than sell, it buys) after the price of the underlying exceeds a certain price.

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RELATED FAQS
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    Forward contracts and call options are different financial instruments that allow two parties to purchase or sell assets ... Read Full Answer >>
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    The primary risks associated with trading derivatives are market, counterparty, liquidity and interconnection risks. Derivatives ... Read Full Answer >>
  3. 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 >>
  4. 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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    In a rights offering, rights are distributed to shareholders based on the number of shares they already own. What Is a Rights ... Read Full Answer >>
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