Chameleon Option

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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    Learn what differences exist between futures and options contracts and how each can be used to hedge against investment risk ... Read Answer >>
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    Learn more about options, what options' volume and open interest are and the difference between volume and open interest ... Read Answer >>
  3. What does the underlying of a derivative refer to?

    Find out more about derivative securities, what an underlying asset is and what the underlying assets refer to in stock options ... Read Answer >>
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    The quick answer is yes and no. It all depends on where the option is traded. An option contract is an agreement between ... Read Answer >>
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