# Compound Option

*Derivatives & Options — Finicade finance glossary*

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.

**Related terms:** [Option](https://finicade.com/glossary/option), [Exotic Option](https://finicade.com/glossary/exotic-options), [Swaption](https://finicade.com/glossary/swaption)

Source: https://finicade.com/glossary/compound-option