An option in which the holder’s payout (payoff) depends, or is contingent, not only on the performance of an equity rate or index price but also on the behavior of another financial or economic factor (such as interest rate, exchange rate, overall price index, etc). For example, a stock option could enable its holder to receive a payout contingent upon a decline in interest rates. More specifically, an investor holding a contingent payout option may try to spot a good correlation between stock prices and interest rates, say in the US. Therefore, he could buy an option on S&P 500, with the option payout being contingent on a specified amount of change in local interest rates.

Of course, and after all, an option payout will be affected by the option seller’s expectations about correlations and the size of change in interest rate specified by the option buyer.

The contingent payout option is also referred to as equity rate contingency option, dual contingency option, stock index contingent option.