Arcade › Glossary › Derivatives & Options › Compound Option Derivatives & Options Compound Option An option on an option — the right to buy or sell another option later, for a set premium. Used to hedge a risk that itself might not materialise, so you pay a small amount now for optionality on optionality. Want more than a definition? Learn it in Quant Quest → Related terms Option Exotic Option Swaption ← Previous Composite Option Next → Contango ← All Derivatives & Options terms