DEFINITION of 'AC-DC Option'

A derivative that gives an investor the right - but not the obligation - to buy (call) or sell (put) a security at a certain price (strike), and in which the investor makes the buy or sell decision at a specific time after the option is in force, rather than at the time of purchase. The AC-DC option is basically an option, which on a future date can become a call or put option at the buyer's discretion.

Also called a "chooser option" or "hermaphrodite option".

BREAKING DOWN 'AC-DC Option'

The value of an AC-DC option is based on a complex formula that takes all of these variables into account. An AC-DC option is a type of exotic option, meaning it has more complicated terms than traditional, plain-vanilla options.

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