Physical Option

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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.

BREAKING DOWN '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.

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RELATED FAQS
  1. 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 ... Read Full Answer >>
  2. 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 ... Read Full Answer >>
  3. How do futures contracts roll over?

    Traders roll over futures contracts to switch from the front month contract that is close to expiration to another contract ... Read Full Answer >>
  4. How does a forward contract differ from a call option?

    Forward contracts and call options are different financial instruments that allow two parties to purchase or sell assets ... Read Full Answer >>
  5. Why do companies enter into futures contracts?

    Different types of companies may enter into futures contracts for different purposes. The most common reason is to hedge ... Read Full Answer >>
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    The value of a futures contract is derived from the cash value of the underlying asset. While a futures contract may have ... Read Full Answer >>

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