A compound option is an option to buy or sell a call or a put. A call on a call is the right to buy a call at T1 for K1 (and if exercised, the purchased call has a strike of K2 and expires at T2). A call on a put is the right to buy a put at T1 for K1 (and if exercised, the purchased put has a strike of K2 and expires at T2). A put on a put is the right to sell a put for K1 at T1 (and if written, the put has a strike of K2 and expires at T2). A put on a call is the right to sell a call for K1 at T1 (and if written, the call has a strike of K2 and expires at T2).
