Contingent Option

A special type of option where the buyer only pays the premium if the option ends up in the money-meaning it finishes with a profit. This structure offers flexibility and cost efficiency, especially in uncertain situations. 

For example, a company expecting a possible future payment in euros might buy a contingent call option on EUR/USD. If the euro rises and the option becomes profitable, the company pays the premium and exercises it. If the euro stays flat or falls, the option expires with no cost. 

Contingent options are often used in project-based hedging or situations with low probability but high impact. They’re related to compound options, as both provide optionality with cost control, and can be alternatives to vanilla options in custom hedging strategies.