DEFINITION of 'Chooser Option'

An option contract that allows the holder to decide whether it is a call or put prior to the expiration date. Chooser options usually have the same exercise price and expiration date regardless of what decision the holder ultimately makes. Because they don't specify that the movement in the underlying asset be positive or negative, chooser options provide investors a great deal of flexibility when evaluating volatile issues.

BREAKING DOWN 'Chooser Option'

Like most options, chooser options fare best when the underlying asset experiences large price fluctuations and is especially useful to investors in instances where emotions figure to play a part in the process. For example, one might be wise to select a chooser option on a biotech company awaiting the FDA's reaction to its latest wonder drug or any company facing litigation. Unfortunately, chooser options are somewhat rare and tend to be issued on more stable items.

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