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Derivatives

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  • October 2, 2021
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Extendible Call

An extendible option that allows the holder, who has the right to buy the underlying asset, to extend the maturity date of the option to an additional interval. The extendible option is worth at least as much as an equivalent ordinary call without the extension add-on. Its value is greater than, or equal to, the maximum value of a standard call and an extended compound option (a call on a call/ cacall).

The holder of the option will choose to exercise the option, if the value of exercising is greater than the fair value of the option, within the compounded option, less the extension premium. Otherwise, he will choose to extend the option, in effect seeking the more valuable call option within the compound option.


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