Basket Option

Filed Under » , ,
Dictionary Says

Definition of 'Basket Option'

A type of financial derivative where the underlying asset is a group of commodities, securities or currencies. Like other options, a basket option gives the holder the right, but not the obligation, to buy or sell an underlying asset at a specific price, on or before a certain date (the holder has the option to buy or sell, or to let the option expire worthless). With a basket option, however, the holder has the right, but not the obligation, to buy or sell a group of underlying assets. A basket option is considered an exotic option.
Investopedia Says

Investopedia explains 'Basket Option'

A currency basket option provides a more cost effective method for multinational corporations to manage multi-currency exposures on a consolidated basis. For example, a global corporation such as McDonald's might buy a basket option involving Indian rupees and British pounds, in exchange for U.S. dollars.

The currency basket option has all the characteristics of a standard option, but the strike price is based on the weighted value of the component currencies (calculated in the holder's base currency). A basket option often costs less than multiple single options.

Articles Of Interest

  1.

    Options Basics Tutorial

    Discover the world of options, from primary concepts to how options work and why you might use them.

  2. How do I use a "basket" option?

    A basket option is an option with an underlying asset "basket" of securities, currencies or commodities. Basket options are a popular way to hedge portfolio risk. Meanwhile, using the basket ...

  3. 6 Asset Allocation Strategies That Work

    Your portfolio's asset mix is a key factor in whether it's profitable. Find out how to get this delicate balance right.

  4. American Vs. European Options

    These two options have many similar characteristics, but it's the differences that are important.

  5. Pay Attention To The Proxy Statement

    Don't overlook this overview of a company's well-being.

  6. How Risk Free Is The Risk-Free Rate Of Return?

    This rate is rarely questioned - unless the economy falls into disarray.

  7. An Introduction To Gamma-Delta Neutral Option Spreads

    Find the middle ground between conservative and high-risk option strategies.

  8. Shopping For A Financial Advisor

    Finding your perfect advisor is as simple as shopping for a car. Read on to learn more.

  9. Nobel Winners Are Economic Prizes

    Before you try to profit from their theories, you should learn about the creators themselves.

  10. The Options Premium

    An options premium is the amount of money that investors pay for a call or put option. The two components that affect options pricing are the intrinsic value and time value. Matthew is interested ...
comments powered by Disqus
Marketplace
Hot Definitions

  1. Racketeering

    Racketeering refers to criminal activity that is performed to benefit an organization such as a crime syndicate. Examples of racketeering activity include...

  2. Lawful Money

    Any form of currency issued by the United States Treasury and not the Federal Reserve System, including gold and silver coins, Treasury notes, and Treasury bonds. Lawful money stands in contrast to fiat money, to which the government assigns value although it has no intrinsic value of its own and is not backed by reserves.

  3. Fast Market Rule

    A rule in the United Kingdom that permits market makers to trade outside quoted ranges, when an exchange determines that market movements are so sharp that quotes cannot be kept current.

  4. Absorption Rate

    The rate at which available homes are sold in a specific real estate market during a given time period.

  5. Yellow Sheets

    A United States bulletin that provides updated bid and ask prices as well as other information on over-the-counter (OTC) corporate bonds...

  6. Bailment

    The contractual transfer of possession of assets or property for a specific objective.
Trading Center