Physical Option

AAA

DEFINITION of 'Physical Option'

An option that is based on a physical asset. Physical options give the owner the right to buy or sell physical assets at a predetermined price and date. They are called "physical" because they are based on assets such as currencies, Treasury debts and commodities, rather than stocks, futures and indexes.

INVESTOPEDIA EXPLAINS 'Physical Option'

As with any other type of option, you can purchase a call or put. You have the right to "call in," or buy, a physical asset by owning a physical call option; you have the right to "put out," or sell, a physical asset by owning a physical put option.

The Chicago Board Options Exchange (CBOE) trades physical options that represent underlying assets such as gold or electricity.

RELATED TERMS
  1. Put Option

    An option contract giving the owner the right, but not the obligation, ...
  2. Currency

    A generally accepted form of money, including coins and paper ...
  3. Commodity

    1. A basic good used in commerce that is interchangeable with ...
  4. Call Option

    An agreement that gives an investor the right (but not the obligation) ...
  5. Physical Asset

    An item of economic, commercial or exchange value that has a ...
  6. Multibank Holding Company

    A company that owns or controls two or more banks. Mutlibank ...
Related Articles
  1. Investing Basics

    The Barnyard Basics Of Derivatives

    This tale of a fictional chicken farm is a great way to learn how derivatives work in the market.
  2. Options & Futures

    Getting Started In Forex Options

    Stocks are not the only securities underlying options. Learn how to use FOREX options for profit and hedging.
  3. Options & Futures

    Options Basics Tutorial

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

    The Advantages Of SPAN Margin

    Find out how it provides futures and commodity option strategists with more bang for their margin buck!
  5. Options & Futures

    Vertical Bull and Bear Credit Spreads

    This trading strategy is an excellent limited-risk strategy that can be used with equity as well as commodity and futures options.
  6. Options & Futures

    Introduction To Weather Derivatives

    Learn about a financial instrument that makes temperature a tradable commodity.
  7. Options & Futures

    How can I find out which stocks also trade as options?

    The trading of options has become increasingly popular among retail investors as they become aware of the many different ways that options can be used to generate large profits. The interesting ...
  8. Options & Futures

    How can I invest in gold?

    Investing directly in commodities, such as gold or oil, tends to be more difficult for investors than investing in stocks and bonds. A major reason for this is that stocks and bonds are readily ...
  9. Options & Futures

    How do you trade put options on E*TRADE?

    Learn all about put option trading at E*TRADE. Explore margin accounts and become familiar with the different types of option writing.
  10. Trading Systems & Software

    How do you trade put options on Ameritrade?

    Learn about option trading with TD Ameritrade. Explore the different types of options and their possible impacts on the investors that write them.

You May Also Like

Hot Definitions
  1. Treasury Bond - T-Bond

    A marketable, fixed-interest U.S. government debt security with a maturity of more than 10 years. Treasury bonds make interest ...
  2. Weight Of Ice, Snow Or Sleet Insurance

    Financial protection against damage caused to property by winter weather specifically, damage caused if a roof caves in because ...
  3. Weather Insurance

    A type of protection against a financial loss that may be incurred because of rain, snow, storms, wind, fog, undesirable ...
  4. Portfolio Turnover

    A measure of how frequently assets within a fund are bought and sold by the managers. Portfolio turnover is calculated by ...
  5. Commercial Paper

    An unsecured, short-term debt instrument issued by a corporation, typically for the financing of accounts receivable, inventories ...
  6. Federal Funds Rate

    The interest rate at which a depository institution lends funds maintained at the Federal Reserve to another depository institution ...
Trading Center