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mutluit
 

Registered: May 2011
Posts: 238

 

10-28-12 07:13 PM

Is it possible to have "options on options"?
Does such a trading vehicle exist?

Here is a paper on such option types, but I'm not sure if such financial products exist yet:
http://www.global-derivatives.com/i...ompound-options

Alternatively: how else could one create a chain (gear) of such products? Ie. if the premium of the 1st level option rises a specified level, say 50%, then this shall trigger the 2nd level option... Goal is to be able to create multiple levels of such options and thereby have a multiplication factor effect...

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1245
 

Registered: May 2012
Posts: 515

 

10-28-12 07:24 PM

What would be the purpose. I'll say no.

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mutluit
 

Registered: May 2011
Posts: 238

 

10-28-12 07:48 PM


Quote from 1245:
What would be the purpose. I'll say no.


The goal is to have a method with multiplication effect on the gains, ie multiplied leverage.

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sle
 

Registered: Apr 2003
Posts: 1609

 

10-28-12 09:57 PM

You used to be able to get them OTC, but they were expensive and not very popular (I'd know best, given that I used to make markets in that sh*t). And obviously there is no added leverage effect given the cost, you just as well might trade options farther OTM.

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mutluit
 

Registered: May 2011
Posts: 238

 

10-28-12 11:27 PM


Quote from sle:
You used to be able to get them OTC, but they were expensive and not very popular (I'd know best, given that I used to make markets in that sh*t). And obviously there is no added leverage effect given the cost, you just as well might trade options farther OTM.


Options on options should be much cheaper than normal options,
and from that point of view I think they should become popular if marketed well by the big firms, not OTC.
I believe one can create very powerful strategies with such vehicles, ie a kind of "chain reaction", x levels wide.
Unfortunately it seems the time is not ripe yet for them.

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atticus
 

Registered: Mar 2007
Posts: 12610

 

10-28-12 11:30 PM


Quote from sle:

You used to be able to get them OTC, but they were expensive and not very popular (I'd know best, given that I used to make markets in that sh*t). And obviously there is no added leverage effect given the cost, you just as well might trade options farther OTM.



Yeah, much better off in down&out calls (up&out puts).

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