DEFINITION of 'Back Fee'

A payment made to the writer of a compound option in the case that the call option is exercised in order to obtain a put option. Back fee is a premium charged at the second portion of the option, since a compound option is an option to purchase an option.

BREAKING DOWN 'Back Fee'

Compound options are most commonly used by mortgage originators as a way to mitigate risk. The back fee is offered at a premium, because it provides an investor with the ability to wait before executing an option.

RELATED TERMS
  1. Front Fee

    The front fee is the option premium paid by an investor upon ...
  2. Put On A Call

    One of four compound options types, a put on a call is a put ...
  3. Call On A Put

    A call on a put refers to a compound option where there is a ...
  4. Option

    Options are financial derivatives that give the option buyer ...
  5. Option Premium

    An option premium is the income received by an investor who sells ...
  6. Vanilla Option

    A vanilla option gives the holder the right to buy or sell an ...
Related Articles
  1. Trading

    Options Pricing

    Options are valued in a variety of different ways. Learn about how options are priced with this tutorial.
  2. Investing

    Why Options Trading Is Not for the Faint of Heart

    Trading options is not easy and should only be done under the guidance of a professional.
  3. Trading

    Getting Started In Forex Options

    Stocks are not the only securities underlying options. Learn how to use FOREX options for profit and hedging.
  4. Trading

    Option trading strategies: A guide for beginners

    Options offer alternative strategies for investors to profit from trading underlying securities. Learn about the four basic option strategies for beginners.
  5. Trading

    The Basics of Options Profitability

    Learn the various ways traders make money with options, and how it works.
  6. Trading

    What Is Option Moneyness?

    In the money, at the money and out of the money define the current profitability of options positions.
  7. Trading

    A Quick Guide To Debt Options

    Options on debt instruments provide an effective way for investors to manage interest rate exposure and benefit from price volatility, learn more today.
RELATED FAQS
  1. How do I change my strike price once the trade has been placed already?

    Learn how the strike prices for call and put options work, and understand how different types of options can be exercised ... Read Answer >>
  2. How can derivatives be used to earn income?

    Learn how option selling strategies can be used to collect premium amounts as income, and understand how selling covered ... Read Answer >>
Trading Center