An option contract for which no premium is paid upfront by the buyer. However, a prespecified premium should be paid if the option is in the money at expiration date. For that reason, this option’s premium would be greater than that of a standard option to compensate the writer for time value and the risk of waiting before receiving the premium.

It is also known as collect on delivery, cash on delivery, capitalized option, pay on exercise and contingent premium option.