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 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 >>
  4. Does the seller (the writer) of an option determine the details of the option contract?

    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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