Changing Financial Colors: the Chameleon Option Offers Choices

by Investing School on August 12, 2011

Chameleons are known for their ability to change color and adapt to the immediate situation; chameleon options are similar in nature. A chameleon option is an option that can change its structure assuming certain conditions of the contract are met.

An option is a financial agreement between two parties regarding the buying and selling of an asset at a specific price. The buyer has the choice of fulfilling the transaction, but not the obligation. An option to buy something is considered a call and one designed to sell something is named a put.

A chameleon option might be one where a put option changes to a call option if the price suddenly rises to a certain level. This is a reasonable way of hedging your bets if you are trading in a stock which is known to have fluctuations in price, since you will either buy or sell based upon price point, without having to enter two contracts.

Knowing where to put your options in such a contract is, of course, the real talent. The differences in prices may be small, only a few hundredths of a cent if you are operating in the Forex. Other assets may have a wider margin between the put and call prices which you place in your agreement.

There are brokers who specialize in options in general and chameleon options specifically. Educating yourself about options and how they work will help you avoid being misdirected, and may involve a good deal of time.

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