Double option – what is it?

  The options market is an independent financial sector. In a relatively short time, options have entered both exchange trading and business relations between large companies. There are about a dozen types of options, each with its own use and specific features. Today, we’ll talk about the concept of a double option.

How Is a Double Option Different from the Rest?

  An option is a contract between two parties, where one party receives the right, but not the obligation, to buy or sell an underlying asset at an agreed price. The main idea is that this price remains fixed regardless of the asset's market behavior. In return for this guarantee, the seller charges a premium, which usually reflects the financial risk they assume.
  Options are divided into two main types — call and put.
  A call option allows its holder to buy the asset at the market price valid at the time of the contract, with the right to exercise this option anytime during its term. Traders typically use these to profit from price increases.
  A put option is the opposite of a call. It gives the holder the right to sell the asset at the agreed price. While put options can also be used for profit, they are more often used to hedge investments — for example, if a trader is unsure whether they can resell an asset at a profit and fears a price drop, they can secure the value of their investment by signing a put option.
  Despite differing in just one aspect, call and put options serve different purposes and have varying popularity. A double option combines both types. It allows the holder to either buy or sell the asset at the strike price. These are also known as two-way options. Because they grant a broader range of rights and increase the seller’s risk, the premium for such options is typically quite high.

When Are Double Options Used?

  Any option deal is an agreement between two participants. For the deal to occur, it must be mutually beneficial — which is usually the case with call and put options. In such contracts, either party can gain or lose, depending on the outcome.
  Clearly, a double option primarily benefits the holder — but that’s only one side of the story. A closer look reveals some features that justify the existence of such a financial instrument:
  1) Double options are used during periods of major price fluctuations in the asset, such as during crises or force majeure situations. In such cases, the asset’s value may swing drastically in either direction, making the deal potentially beneficial for both parties.
  2) The premium for a double option is also “double” — usually not less than 20% of the investment amount.
  3) The option includes several conditions for execution. Most double options are barrier options, which helps balance the risks between the parties.
  Nevertheless, even with these characteristics, double options in their classical form are rarely used.